A recent report submitted to the Rajya Sabha reveals that 5,892 cases have been taken up under the Prevention of Money Laundering Act (PMLA) 2002 by the Enforcement Directorate (ED) since 2015. However, only 15 convictions have been secured by special courts, raising serious concerns about the effectiveness of PMLA enforcement and misuse of the law.
UPSC CSE UPSC CSE Relevance:
General Studies-III: money-laundering and its prevention.
2021 Mains
Discuss how emerging technologies and globalisation contribute to money laundering. Elaborate measures to tackle the problem of money laundering both at national and international levels.
2013 Mains
Money laundering poses a serious threat to country’s economic sovereignty. What is its significance for India and what steps are required to be taken to control this menace?
Money Laundering
Black Money
Money which breaks laws in its origin, movement or use and is not reported for tax purposes, is called black money.
Illegal in origin – Drug trafficking, corruption, human trafficking, prostitution etc
It also includes that money on tax is evaded or statutory requirements are not followed, for example, money generated by running a firecrackers factory with children working as labors.
Legal provisions to deal with black money
Prevention of Money Laundering Act 2002
Laundered money can be attached and seized
Individuals and entities indulging in ML can be prosecuted
Imprisonment of minimum 3 years upto 7 years and a fine of Rs 5 Lakh
MLAT used to recover such proceeds
Foreign Exchange management Act 1999 (Related to limited capital account convertibility in India, make contravention a civil offence)
Foreign exchange transaction contravening the limits imposed by the government can be adjudicated with penalty upto a maximum 3 times of the amount involved
Such money and assets can be confiscated and repatriated
Section 105 of CrPC – provides reciprocal arrangement and procedure for forfeiture of properties generated from commission of an offence
Under Income tax Act evading tax is subject to penalty and prosecution
Strategy to tackle black money
Prevent generation – online transactions and KYC norms and reporting large transactions
Discourage use – amnesty schemes
Effective detection – Tracing the money trail
Effective investigation and adjudication – increase the capacity and manpower of Enforcement Directorate, FIU, CBI and increase international cooperation
Regulate use of large denomination
Money Laundering (ML)
The process of creating the appearance that large amount of money obtained from serious crimes, such as drug trafficking or terrorist activity, is from legitimate sources is called money laundering
Or simply process of making dirty money look like clean money is called money laundering
Link with terrorism
Those who fund terrorist groups use laundering route to avoid getting caught by investigating agencies
Terrorists use laundering route to operationalize their activities such as booking plane tickets, purchasing weapons online
Three step process
Placement
Riskiest step where launderers inserts the money into formal financial channel
Banks are required to report large transactions
Layering
Sending the money through various financial transactions to change its form and make it difficult to trace
Bank to bank transfer, international transactions, investment into shell companies, donations to political parties, purchasing high value items etc
Integration
Money re-enters the system. Now it appear to come from legitimate sources
Purchase Properties stated under value, Create trusts -receive donations
Round-tripping
Money leaves the country through various channels such as inflated invoices, payments to shell companies overseas, the hawala route and so on. Invested in many shell companies or other assets in the foreign country. Comes back to India in the form of P-Notes, Global depository receipts or even offshore investments in shell companies of India.
Trade based ML (TBML)
Process of transferring or moving dirty money through trade transactions
Techniques of TBML
Shipping scrap and pricing it at a premium by claiming it is A grade material. Thus legitimizing the proceeds of the crime. Over-invoicing and under-invoicing of goods and services
Over-invoicing example – selling a painting for 100 Rs but showing that it was sold for Rs. 1 Lakh. Thus legitimizing the proceeds of crime
Under-invoicing example – buying a property for Rs 10 Lakh but showing that it was brought for Rs 1 Lakh only. Thus using proceeds of crime as an investments
Multiple-invoicing of goods and services: Transaction is done multiple times on paper under various instruments
Over-shipment and under-shipment of goods and services: Similar to over or under invoicing however instead of doctoring the amounts the quantities are manipulated. Example – saying that I got 100 wooden sofa sets shipped from Myanmar. Whereas actually only 10 might have been shipped and rest were bought locally.
Effects of ML
Economic
Unaccounted money artificially increases money flow in the economy leading to inflation or stock price rise
When law enforcement agencies begin taking action – such money fades away leading to fall in stock prices
Local businesses are at disadvantage since such money has paid lesser taxes coming from tax haven.
Possible harm to the reputation of banks and the market.
Measurement mistake causes policy distortion.
When firms compete, they lose because there is no fair competition.
Organised crime may do well in the area.
It also makes doing business more expensive, which hurts small enterprises more than others.
Changes in interest rates and exchange rates that happen because of unexpected money transfers.
Money laundering operations cause relative asset commodity prices to be misallocated.
Insider trading, fraud, and embezzlement have made people lose faith in the markets and discourages foreign investment since corporations don’t like a lot of corruption.
Higher insurance premiums for people who don’t make false claims and higher costs for businesses are other indirect economic repercussions. These things make it harder for firms to break even because they make less money.
Because of these bad effects, policymakers have a hard time coming up with good ways to deal with monetary risks, which makes it hard for the government to manage its economic strategy.
All of the foregoing would cause fake inflation, jobless growth, income disparity, poverty, and other problems that would make society less safe in the end.
Social
Criminal activities proliferate as avenues of ML are successful
Law abiding citizens are at disadvantage and transfers the economic power from the right people to the wrong ones.
Loss of morality and ethical standards leading to weakening of social institutions.
Increased unemployment as legitimate business companies fail to compete with operators operating through illegal money.
Political Impact
Affects the government’s capability to spend on development schemes thereby affecting a large section of populations who could have benefitted from such spending.
Legislative bodies find it difficult to quantify the negative economic effects of money laundering on economic development and its linkages with other crimes – trafficking, terrorism etc.
Security Impact
The quest to legalize illicit earnings spawns money laundering, which in turn provides the required financial boost for these illegal activities to survive. Several large-scale illegal activities such as arms dealing, organized crime, terrorist financing, as well as drug and sex trafficking, do not just drive money laundering but thrive on it.
Usually terrorist organisations receive funds from other countries, those funds cannot be transferred easily through formal banks, so terrorists use hawala transaction for receiving and sending all the funds
Prevention of Money Laundering
Mechanisms created by INDIA
Prevention of Money Laundering Act 2002
Money laundering linked to predicate scheduled offences is liable to be punished. Offence of Money Laundering is not an independent crime. It depends on ‘predicate offence’
156 such offences under 28 different Statutes.
Predicate offence part is taken up by agency either CBI, Customs or state police. It’s money laundering part is handled by Enforcement Directorate.
ED ascertains proceeds of crime and can initiate seizure and attachment of laundered property. This action is adjudicated by Adjudicating authority (AA) established under PMLA
Special courts can provide for imprisonment from 3 years to 7 years and a fine upto 5 Lakh Rs. The property attached can be confiscated by AA after the conviction by the special court for scheduled offence.
Burden of proof is on the accused. Statements recorded by ED Officers admissible.
Procedures of Mutual Legal assistance is provided in the act for seizure and attachment of the property. India has signed MLAT with 26 countries.
Section 12 of PMLA requires financial sector entities to verify the identity of their clients and report suspicious transactions to FIU-IND. FIU-IND is empowered to take action against such entities which fail to comply with this section.
Financial Intelligence Unit
It was set by the Government of India in 2004 as the central national agency responsible for receiving, processing, analyzing and disseminating information relating to suspect financial transactions.
FIU-IND is also responsible for coordinating and strengthening efforts of national and international intelligence, investigation and enforcement agencies in pursuing the global efforts against money laundering and related crimes.
FIU-IND is an independent body reporting directly to the Economic Intelligence Council (EIC) headed by the Finance Minister.
Egmont Group of Financial Intelligence Units
It is an informal group of national FIUs. National FIUs collect information on suspicious or unusual financial activity from financial industry and other entities required to report suspicious transactions.
Global mechanisms to Combat Money Laundering:
Vienna Convention
It was the first major initiative in the prevention of money laundering held in December 1988. This convention laid down the groundwork for efforts to combat money laundering by obliging the member states to criminalize the laundering of money from drug trafficking. It promotes international cooperation in investigations and makes extradition between member states applicable to money laundering.
The Council of Europe Convention
This convention held in 1990 establishes a common policy on money laundering to facilitate international cooperation as regards investigative assistance, search, seizure and confiscation of the proceeds of all types of criminality, particularly serious crimes such as drug offences, arms dealing, terrorist offences etc. which generate large profits. It sets out a common definition of money laundering and common measures for dealing with it.
Basel Committee’s Statement of Principles
In December 1988, the Basel Committee on Banking Regulations and Supervisory Practices issued a statement of principles which aims at encouraging the banking sector to adopt common position in order to ensure that banks are not used to hide or launder funds acquired through criminal activities.
The Financial Action Task Force (FATF)
The FATF is an inter-governmental body established at the G7 summit at Paris in 1989 with the objective to set standards and promote effective implementation of legal, regulatory and operational measures to combat money laundering and terrorist financing and other related threats to the integrity of the international financial system. It has developed a series of recommendations that are recognized as the international standards for combating money laundering and the financing of terrorism. They form a basis for a coordinated response to these threats to the integrity of the financial system and help ensure a level playing field.
United Nations Global Programme against Money Laundering (GPML)
GPML was established in 1997 with a view to increase effectiveness of international action against money laundering through comprehensive technical cooperation services offered to Governments.
The programme encompasses following 3 areas of activities, providing various means to states and institutions in their efforts to effectively combat money laundering.
Three further Conventions have been adopted for Money Laundering related crimes:
International Convention for the Suppression of the Financing of Terrorism (1999).
UN Convention against Transnational Organized Crime (2000).
UN Convention against Corruption (2003).
Challenges in prevention of money laundering
Rapid advancements in digital technology: The enforcement agencies are not able to match up with the speed of growing technologies which enables money launderers to obscure the origin of proceeds of crimes by cyber finance techniques.
Predicate-offence-oriented law: This means a case under the Act depends on the fate of cases pursued by primary agencies only such as the CBI, the Income Tax Department or the police. (Predicate offence- any offence that is component of more serious offence).
Lack of awareness about seriousness of crimes of money-laundering: The poor and illiterate people, instead of going through lengthy paper work transactions in Banks, prefer the Hawala system where there are fewer formalities, little or no documentation, lower rates and anonymity.
Non-fulfilment of the purpose of KYC Norms: Increasing competition in the market is forcing the Banks to lower their guards and thus facilitating the money launderers to make illicit use of it in furtherance of their crime.
Involvement of employee of financial institution: Financial institutions are supposed to check the source of funds, monitor the activities on accounts, and track irregular transactions but usually an employee of the financial institution is involved making it easier to launder.
Lack of comprehensive enforcement agencies: The offence of money laundering is borderless and has expanded its scope to many different areas of operation. In India, there are separate wings of law enforcement agencies dealing with money laundering, terrorist crimes, economic offences etc. and they lack convergence among themselves.
Tax Haven Countries: They have long been associated with money laundering because their strict financial secrecy laws allow the creation of anonymous accounts while prohibiting the disclosure of financial information. Furthermore, there is strong evidence indicating that a substantial portion of these funds has been used to sustain terrorist groups such as Al-Qaeda.
Way Forward
Make money laundering a separate criminal offence to be investigated by the Enforcement Directorate, irrespective of a probe by other agencies.
Risk assessment: Financial institutions should undertake a risk assessment prior to the launch of the new products, business practices or the use of new or developing technologies.
Follow ‘Client Due Diligence Process’ as envisaged under PMLA 2002: based on specific parameters related to the overall policy for acceptance of clients, procedure for identifying the clients and transaction monitoring and reporting.
Tackling tax havens: There is a need to draw a line between financial confidentiality rules in certain countries and these financial institutions becoming money laundering havens.
The HSBC India Services PMI rose to 60.5 in July 2025, marking the highest in 11 months, driven by strong demand and sustained new business intake. This reflects robust recovery and expansion in India’s services sector, an essential component of the economy.
UPSC CSE UPSC CSE Relevance:
UPSC CSE in prelims examination has focused every year on reports and indexes.
UPSC Prelims PYQ 2019:
Which one of the following is not a sub-index of the World Bank’s ‘Ease of Doing Business Index’? A) Maintenance of law and order B) Paying taxes C) Registering property D) Dealing with construction permits
Abou Purchasing Manager Index:
Purchasing Managers’ Index (PMI) is an indicator used to measure business activity in the manufacturing and services sectors.
It is released separately for the manufacturing and services sectors.
It is a survey-based measure.
PMI data are factual indicators of global economic health based on monthly surveys of business executives covering 45 economies and 30 sectors.
The PMI is widely used to anticipate changing economic and market trends and as a barometer for economic performance and business conditions.
Features of PMI:
Headline Number: A number between 0 and 100 indicating the overall health of an economy. A PMI reading over 50 represents economic expansion, and below 50 represents contraction compared to the month prior.
Sub-Indices: 5700 Individual measures of key economic drivers including business output, inflation, exports, capacity utilization, employment, pricing, and inventories, and more.
Who releases it?
It is released by S&P Global (Standard & Poor’s Global).
S&P Global is an American financial services company and a credit rating agency.
Significance of PMI
The Purchasing Managers’ Index (PMI) is usually released at the beginning of each month, well before official data on industrial production, manufacturing, and GDP growth becomes available. This makes it a reliable early indicator of overall economic activity.
Economists view manufacturing PMI as a strong predictor of industrial output, which is typically reported later through official government statistics.
Many central banks use PMI data as a reference while making decisions about interest rates and other monetary policy measures.
The PMI is also an important signal for corporate earnings and is closely monitored by investors and bond markets. A strong PMI reading improves a country’s economic attractiveness compared to its global competitors.
Practice Question:
Consider the following statements related to the Purchasing Managers’ Index (PMI):
It is released by the National Statistical Office (NSO) for the services and manufacturing sectors.
Supreme Court gave Pollution Control Boards more teeth by declaring their power to impose and collect restitutionary damages to completely restore polluted air and waterbodies back to their original, pristine selves in an ecosystem.
UPSC CSE UPSC CSE Relevance:
UPSC CSE in prelims examination has focused on different boards, bodies and authorities related to environment(NGT, CPCB, NTCA etc.). A case in point is a following PYQ.
UPSC Prelims PYQ 2018:
Q: How is the National Green Tribunal (NGT) different from the Central Pollution Control Board (CPCB)?
1.The NGT has been established by an Act whereas the CPCB has been created by an executive order of the Government.
2.The NGT provides environmental justice and helps reduce the burden of litigation in the higher courts whereas the CPCB promotes cleanliness of streams and wells, and aims to improve the quality of air in the country.
Which of the statements given above is/are correct?
A) 1 only
B) 2 only
C) Both 1 and 2
D) Neither 1 nor 2
Supreme Court’s Recent Ruling:
Pollution Control Boards can impose and collect as restitutionary and compensatory damages fixed sums of monies or require furnishing bank guarantees as an ex-ante measure towards potential environmental damage in exercise of powers under Sections 33A and 31A of the Water and Air Acts.
The provisions under these statutes bestowed the Boards with the power to direct closure, prohibition or regulation of any industry, operation or process. Further, this power extended to directing the stoppage or regulation of supply of electricity, water or any other service.
The court also ruled that this power should be enforced only after issuing the necessary subordinate legislation in the form of rules and regulations under both statutes. The rules must incorporate the basic principles of natural justice.
The court quoted the ‘polluter pays’ principle.
The judgment came on an appeal filed by the Delhi Pollution Control Committee against a Delhi High Court decision that it was not empowered to levy compensatory damages in exercise of powers under Section 33A of the Water (Prevention and Control of Pollution) Act, 1974 and Section 31A of the Air (Prevention and Control of Pollution) Act, 1981.
Pollution Control Boards:
The Central Pollution Control Board (CPCB) is a statutory organization in India responsible for preventing, controlling, and abating environmental pollution.
Establishment and Legal Framework:
Established: The CPCB was constituted in September 1974.
Governing Acts: It was initially established under the Water (Prevention and Control of Pollution) Act, 1974. Hence, a statutory body.
Additional Responsibilities: The CPCB was later entrusted with powers and functions under the Air (Prevention and Control of Pollution) Act, 1981. It also provides technical services to the Ministry of Environment, Forest and Climate Change (MoEF&CC) for implementing the provisions of the Environment (Protection) Act, 1986.
Key Functions and Responsibilities:
National-level Role: The CPCB advises the Central Government on matters related to water and air pollution and works to improve air quality.
Inter-agency Coordination: It coordinates the activities of State Pollution Control Boards (SPCBs) and resolves disputes among them.
Technical Guidance: It provides technical assistance and guidance to SPCBs, sponsors research, and plans nationwide programs for pollution prevention and control.
Data and Standards: The CPCB collects, compiles, and publishes technical data on pollution. It also lays down standards for water quality and air quality in consultation with state governments.
Public Awareness: It organizes mass media campaigns to raise public awareness about pollution control.
Monitoring: The CPCB is responsible for monitoring air and water quality across the country through various programs like the National Air Quality Monitoring Programme (NAMP) and the National Water Quality Monitoring Programme (NWMP).
Waste Management: It plays a significant role in managing various types of waste, including municipal solid waste, biomedical waste, and e-waste.
Organizational Structure:
Headquarters: The head office of the CPCB is located in New Delhi.
Leadership: It is headed by a Chairman and supported by a Member Secretary and other members.
Regional Offices: The CPCB operates through several regional directorates located in different parts of the country.
At State level there are State Pollution Control Boards that follow the directives of both CPCB and State Govt.
The critically endangered Asian giant tortoise has been reintroduced into the Zeliang Community Reserve in Nagaland’s Peren district.
UPSC CSE UPSC CSE Relevance:
UPSC CSE in prelims examination has focused on Species in news every year UPSC asked at least one question related to species. A case in point is a following PYQ.
UPSC Prelims PYQ 2013:
Consider the following fauna of India:
1. Gharial
2. Leatherback turtle
3. Swamp deer
Which of the above is/are critically endangered?
A) 1 and 2 only
B) 3 only
C) 1, 2 and 3
D) None
UPSC Prelims PYQ 2021:
Which one of the following is a filter feeder?
A) Catfish
B) Octopus
C) Oyster
D) Pelican
Asian Giant Tortoise (Manouria emys):
The largest tortoise in mainland Asia with individuals reaching up to 60 cm in length and weighing over 35 kg.
The shell is typically dark brown to black and is highly domed.
It is believed to be one of the oldest tortoise species in the world.
They are herbivores, feeding on leaves, fruits, mushrooms, and other vegetation.
They are known to live for a long time, with some individuals potentially reaching 80-100 years.
Asian giant tortoises, also known as the small elephants of the forests, help in seed dispersal and forest regeneration, apart from scavenging to keep the forest floor clean.
They are one of the few tortoise species known to build an above-ground nest using a large pile of leaves and also one of the only species to exhibit maternal care, with the female guarding the nest.
It has a wide but fragmented range across South and Southeast Asia.
It is found in humid regions of North East India.
IUCN Status : Critically Endangered
Schedule IV of the Wildlife (Protection) Act, 1972
CITES Appendix II, which allows international commercial trade but only with a permit and if the trade is not detrimental to the species’ survival.
The Recent Conservation Programme:
Once found in large numbers, the Asian giant tortoise was almost wiped out from Nagaland more than a decade ago.
Following a long-term agreement with the Nagaland State Forest Department, the India Turtle Conservation Programme (ITCP) started the conservation project in 2018 with tortoises mostly donated by people who kept them as pets.
The tortoises were released in a pre-constructed soft-release enclosure to help them develop site fidelity before actual dispersal.
They are marked and tagged with a VHF-based telemetry system to study their dispersal and survival in deep rainforests.
Youths from the local community have been engaged by the project as ‘tortoise guardians’ to ensure protection of the released tortoises and assist in data collection. Other community members have also been involved in the project in various capacities.
Difference between Tortoise and Turtle:
Feature
Turtles (Aquatic & Semi-Aquatic)
Tortoises (Terrestrial)
Habitat
Primarily live in or around water, including oceans, rivers, lakes, and swamps. They often only come ashore to bask or lay eggs.
Exclusively land-dwelling creatures. They inhabit a range of terrestrial environments, from deserts to grasslands and forests. They avoid deep water as most species cannot swim well.
Shell
Typically flatter, more streamlined, and lighter to help them move efficiently through the water.
Generally high-domed, thick, and heavy for maximum protection from terrestrial predators.
Limbs
Have webbed feet with claws for walking on land and swimming, or flippers for life in the sea.
Have sturdy, elephant-like, club-like legs that are well-suited for walking and supporting their heavy bodies on land.
Diet
Mostly omnivorous. Their diet includes a mix of plants and animals, such as aquatic vegetation, insects, fish, and crustaceans.
Primarily herbivorous. They feed on grasses, leaves, weeds, fruits, and other vegetation.
Lifespan
Varies widely, but generally shorter than tortoises. Many species live for 20-40 years, though some sea turtles can live much longer.
Known for their exceptional longevity. It is not uncommon for them to live for 80-150 years or even longer.
Palm oil exports from Malaysia and Indonesia—which together account for 85% of the world’s crude palm oil supply—are projected to fall by up to 20% by 2030, raising alarm about future vegetable oil prices and global supply. The key cause is delayed replanting of ageing palm oil trees by smallholders who make up 40% of the plantation base.
UPSC CSE UPSC CSE Relevance:
UPSC CSE in prelims examination has focused on Balance of Payment(export and import). A case in point is a following PYQ.
UPSC PYQ 2021:
Q: With reference to ‘palm oil’, consider the following statements:
The palm oil tree is native to Southeast Asia.
The palm oil is a raw material for some industries producing lipstick and perfumes.
The palm oil can be used to produce biodiesel.
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
UPSC PYQ 2018:
Q. Consider the following statements:
The quantity of imported edible oils is more than the domestic production of edible oils in the last five years.
The Government does not impose any customs duty on all the imported edible oils as a special case.
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
About Palm Oil:
India has emerged as Malaysia’s largest importer of germinated oil palm seeds, with demand surging as the country accelerates efforts to boost domestic palm oil production and reduce import dependency.
India imported 3.03 million tonnes of palm oil from Malaysia in 2024, representing 17.9% of Malaysia’s total palm oil exports and making it the top destination for Malaysian palm oil.
Leading exporters of Palm Oil were Indonesia ($24.8B), Malaysia ($14B), and Netherlands ($1.12B).
The top importers were India ($8.7B), China ($4.85B), and Pakistan ($2.86B).
Growing Conditions:
Temperature is 21 to 32 degree Celsius.
Annual rainfall – 200 cm and relative humidity – 75 – 100 %.
Altitude – 450 -900 m above MSL.
Soil: Moist deep, loamy soils, rich in humus with good water permeability are suitable.
Use of Palm Oil:
National Mission on Edible Oils-Oil Palm (NMEO-OP):
Target of National Mission on Edible Oils(NMEO-OP):
Around 9 MT of palm oil is imported every year to the tune of Rs. 40,000 crore which is around 56 % of the total imports of edible oil. At present against a total potential area of around 28 lakh hectares, only 3.70 lakh hectares is under oil palm cultivation.
The target fixed for Oil palm area expansion by 2025-26 under NMEO-Oil palm is given below:
To increase area of oil palm to 10 lakh hectares from 3.5 lakh ha during 2019-20 by 2025-26 (additional 6.50 lakh ha) of which it is targeted 3.22 lakh hectares for general state and 3.28 lakh ha in North Eastern states with targeted FFBs production of 66.00 lakh tonnes.
To increase in Crude Palm Oil production from 0.27 lakh tonnes during 2019-20 to 11.20 lakh tonnes by 2025-26.
Increase consumer awareness to maintain consumption level of 19.00 kg/person/annum till 2025-26.
On July 30, 2025, U.S. President Donald Trump abruptly announced a 25% tariff on all goods from India, effective August 1, 2025, coupled with an unspecified “penalty” targeting India’s purchases of energy and military hardware from Russia. This move – framed by Trump as a response to a “massive” U.S. trade deficit with India and India’s “vast” imports from Russia– marks a sharp escalation in U.S.-India trade tensions. It underscores the increasingly complex interplay between economic policy and geopolitical strategy in international affairs.
This development did not occur in isolation. Since early 2025, the Trump administration has wielded tariffs as leverage over several trading partners. In April 2025, a 26% reciprocal tariff on India was threatened (dubbed the “Liberation Day” tariffs), though implementation was paused amid negotiations. The newly imposed 25% tariff essentially revives that earlier plan at a slightly reduced rate, catching New Delhi off guard which had anticipated a lower figure around 15–17% based on U.S. deals with other countries. Together with the vague Russia-related penalty, these measures elevate pressure on India, reflecting U.S. willingness to use economic tools to pursue broader strategic aims.
This article below analyzes the reasons behind the U.S. tariff decision, the landscape of India-U.S. trade, sectoral impacts on India, comparative tariff disparities, legal and diplomatic considerations, and the responses from the Indian government and industry. It also explores how these tariffs epitomize the intersection of trade and geopolitics, and what it means for India’s strategic autonomy in navigating great power dynamics.
What are tariffs?
Tariffs are a kind of trade barrier that raises the price of goods brought in from other countries compared to goods made in the US. Usually, tariffs are taxes or levies that importers have to pay, and these costs are passed on to customers. As a way to safeguard their own businesses, countries often utilise them in international trade.
For instance, in February 2025, President Trump put a 25% tax on goods coming into the US from Canada and Mexico and a 10% tax on goods coming in from China. There is also a 10% tax on Canadian energy resources.
Why Are Tariffs and Trade Barriers Used?
Protecting Jobs at Home: Imported goods could make things harder for domestic industries by making them more competitive. To save money, these corporations may fire workers or move production to other countries. This will lead to more unemployment and a less pleased electorate. When people talk about unemployment, they often bring up how cheap foreign labour is and how bad working conditions and a lack of rules let foreign corporations make items for less. But in economics, countries will keep making things until they lose their comparative advantage (which is not the same as an absolute advantage).
Keeping Customers Safe A government can put a tax on goods that it thinks could be dangerous to its people. For instance, a country might put a tax on beef that comes from another country if it feels the meat could be infected with a disease.
New and emerging industries: Many emerging countries adopt the Import Substitution Industrialisation (ISI) strategy to defend their new sectors with tariffs. In industries where it wants to encourage growth, the government of a developing economy will charge tariffs on goods that come from other countries. This raises the prices of items that come from other countries and makes a market for goods made in the US. It also protects those businesses from being pushed out by lower prices. It lowers the number of people who are out of work and lets emerging countries move from growing crops to making things. People who don’t like this kind of protectionist stance say that it costs too much to help new sectors get started. If an industry grows without competition, it might make lower-quality items, and the government might have to give it money to keep it going, which could slow down economic progress.
Security of the Nation Developed countries also use barriers to preserve some industries that are seen as strategically significant, such those that help keep the country safe. People frequently think that defence businesses are very important to the government and give them a lot of protection. For instance, both Western Europe and the United States have a lot of factories, but they are both quite protective of enterprises that make things for the military.
Retaliation: If a country thinks that a trading partner hasn’t followed the rules, it may also use tariffs as a way to get back at them. For instance, if France thinks that the US has let its wine makers call their sparkling wines “Champagne” (a designation that only applies to the Champagne region of France) for too long, it can put a duty on goods that come into the country from the US. France will probably quit retaliating if the U.S. agrees to stop the wrong labelling. If a trading partner goes against the government’s goals for foreign policy, retaliation can also be used.
Common Types of Tariffs
There are several types of tariffs and barriers that a government can employ:
Specific tariffs
Ad valorem tariffs
Licenses
Import quotas
Voluntary export restraints
Local content requirements
Specific Tariffs
Reasons Behind the U.S. Tariff Imposition
President Trump’s announcement on his Truth Social platform was unambiguous in citing multiple justifications for the tariff on India. The key reasons include:
Trade Deficit Concerns: The U.S. goods trade deficit with India reached $45.7 billion in 2024, a 5.4% increase from 2023. Trump views this imbalance – where U.S. imports from India far exceed exports – as evidence of an unfair trading relationship. He described the deficit as “massive” and emblematic of how India has “done very little business” with the U.S. on equitable terms. Reducing bilateral deficits has been a consistent goal of Trump’s trade policy, and India’s surplus is a clear target.
India’s Tariffs and Non-Tariff Barriers: The Trump administration criticizes India’s own import barriers, arguing that India maintains high tariffs and restrictive regulations that hinder U.S. exports. Trump has called India’s non-monetary barriers – such as certain sanitary/phytosanitary rules and subsidies – among the most “strenuous and obnoxious” in the world. For example, stringent agricultural import standards and subsidies supporting Indian farmers are viewed in Washington as protectionist measures that limit market access for U.S. products. The tariff threat is thus partly retaliatory, pushing India to lower its trade barriers in a future deal.
BRICS and De-dollarization India’s active role in BRICS (Brazil-Russia-India-China-South Africa) has added friction. Washington perceives BRICS initiatives – such as promoting trade in local currencies or exploring a new reserve currency – as challenges to U.S. dollar hegemony. President Trump even warned in February 2025 that BRICS nations could face “100% tariffs” if they undermine the role of the U.S. dollar. India’s participation in discussions on alternatives to the dollar within BRICS (e.g. a potential common currency or non-dollar payment systems) has raised concern in the U.S. that New Delhi may be aligning with efforts deemed “anti-American”. The new tariff can be seen as a signal dissuading India from moving too far with BRICS on monetary alternatives. (Notably, BRICS members publicly rejected the “anti-American” label; Brazil’s President Lula defiantly stated, “The world has changed. We don’t want an emperor,” in response to Trump’s threats.
India-Russia Defense and Energy Ties: A significant wrinkle in this tariff announcement is the unspecified “penalty” for India’s purchases from Russia. Trump explicitly linked India’s “vast majority” sourcing of military equipment and its status as one of Russia’s largest energy buyers to the need for punitive action. The U.S. is increasingly frustrated with India’s continued imports of Russian oil and arms amid the Ukraine war. In fact, Washington is considering extreme measures: a proposed Sanctioning Russia Act of 2025 in Congress would authorize up to 500% tariffs on countries buying Russian oil, gas, or uranium– a staggering penalty that underscores U.S. resolve to squeeze Russia’s trade partners. While this bill is not yet law, its spirit is reflected in Trump’s tariff-plus-penalty approach toward India. The mere uncertainty of what the extra penalty on India might entail (higher duties on certain goods? financial sanctions?) is likely intentional, designed to maximize U.S. leverage in pressing New Delhi to scale back ties with Moscow.
It’s worth noting India’s perspective here. New Delhi has reduced its dependence on Russian arms over the years (Russia’s share of India’s defense imports fell from 72% in 2010–14 to about 36% in 2024) and has diversified to suppliers like France, Israel, and the U.S. Moreover, India has not made any big-ticket Russian weapon purchase in recent years (the last major deal was the S-400 air defense system in 2018). India also insists its oil imports from Russia are guided by energy security and pricing, not support for the war. Nevertheless, India’s refusal to join Western sanctions on Russia, its purchase of discounted Russian crude, and its continued engagement with Russia (e.g. in forums like BRICS) underlie Trump’s decision to impose an extra penalty. In U.S. eyes, these actions undermine the pressure campaign against Moscow and thus warrant a tough response.
In sum, the tariff announcement is driven by a mix of economic grievances and geopolitical calculations. It signals U.S. dissatisfaction with trade imbalances and market access issues, while also tying trade to strategic alignment – implicitly asking India to distance itself from Russia and perhaps from BRICS initiatives, in exchange for better trade terms.
India-U.S. Trade Landscape and Significance
The United States is India’s largest trading partner, making this tariff highly consequential for India’s economy. Bilateral goods and services trade reached about $131.8 billion in 2024-25, and the two nations had set an ambitious goal to more than double this to $500 billion by 2030. In fact, during a cordial summit in February 2025, Prime Minister Narendra Modi and President Trump agreed to work toward a multi-sector Bilateral Trade Agreement (BTA) by fall 2025 as a step toward that $500 billion goal. Both leaders spoke of a “fair, balanced, and mutually beneficial” trade pact that would require new terms to unlock the next level of trade cooperation.
Key features of the India-U.S. trade relationship include:
India’s Exports to the U.S.: India exported roughly $87 billion worth of goods to the U.S. in 2024-25. These exports span diverse sectors – from electronics and engineering goods to pharmaceuticals, textiles, gems and jewelry, and agricultural products. The U.S. alone accounts for about 17% of India’s total exports, underscoring the market’s importance. Notably, India had recently made significant gains in high-tech manufacturing exports to the U.S. (discussed further below).
U.S. Exports to India: U.S. goods exports to India stood at roughly $41 billion in 2024 (by difference, given the $129.2 billion goods trade and $45.7 billion deficit). Major U.S. exports include crude oil, electronic components, aircraft, machinery, and agricultural goods. India’s large population and growing middle class represent an attractive market, but U.S. firms have often cited tariff and regulatory barriers in India as obstacles (for example, high duties on electronics or price controls in medical devices).
The Persistent U.S. Trade Deficit: As noted, the U.S. had a goods trade deficit of $45.7 billion with India in 2024, up from about $43 billion in 2023. India enjoys a surplus largely due to its competitive exports in sectors like pharmaceuticals, IT services, and jewelry. While the U.S. runs services trade surpluses with India (thanks to education, travel, and financial services), the goods deficit has been a political sticking point. U.S. officials argue this reflects market distortions (e.g. India’s import tariffs average around 15% for many products, higher than U.S. tariffs) and want more reciprocal access.
Recent Negotiations: Prior to the tariff bombshell, India and the U.S. were deep in talks to resolve trade irritants and perhaps clinch a “mini trade deal” or BTA. Multiple rounds in New Delhi and Washington had tried to bridge gaps on issues like agriculture and dairy access (the U.S. wants India to open its dairy market and reduce farm subsidies) and digital trade/data storage rules (the U.S. seeks more liberal e-commerce and data flow policies). India, for its part, has been defensive about protecting farmers (it restricts dairy imports to guard its rural livelihoods) and digital sovereignty (seeking local data storage, which U.S. tech firms resist). By mid-2025, these sticking points remained unresolved, and the tariff threat appears to be an attempt to force concessions by creating urgency. Trump’s August 1 deadline for deals – part of his sweeping global tariff strategy – left India with little time, as talks had not yielded a breakthrough.
Importantly, the tariff strikes at a time when India is trying to maintain a delicate balance: deepening strategic ties with the U.S. (in the Indo-Pacific security domain, technology, etc.) while preserving its own strategic autonomy (which includes relations with Russia and participation in groupings like BRICS). The tariff shock thus puts New Delhi in an uncomfortable spot, where economic interdependence with the U.S. collides with independent foreign policy choices.
Key Indian Export Sectors Affected
The across-the-board 25% U.S. tariff threatens to impact virtually all Indian exports to America, but some sectors stand out for their volume and vulnerability. India’s export profile to the U.S. features both traditional industries (apparel, gems) and newer areas (electronics, pharma). Below are key sectors and the tariff’s potential impact on each:
Electronics and Technology: In a dramatic shift, India became the largest exporter of iPhones to the U.S. in Q2 2025, accounting for 44% of U.S. iPhone imports that quarter. Apple’s “Make in India” expansion saw India overtake China (whose share of U.S. iPhone imports fell to 25% from 61% a year prior). This was a landmark achievement for India’s electronics manufacturing drive. Apple and its suppliers ramped up assembly in India, with plans to increase iPhone production capacity from ~40 million units to 60 million units annually. A 25% tariff directly endangers this success story. Smartphones assembled in India suddenly become 25% more expensive for U.S. consumers, unless Apple absorbs the cost. Industry officials warn that if tariffs persist, India could “lose the electronics manufacturing business for the U.S.” as companies like Apple and Samsung might divert production to other countries or focus on non-U.S. markets. Indeed, Samsung – which had just started exporting India-made phones to the U.S. – indicated it can shift production to its large facilities in Vietnam (which faces a lower U.S. tariff rate of ~20%) to remain competitive. The electronics sector, a bright spot in India’s export diversification, thus faces a serious setback. (Notably, the U.S. has exempted certain Chinese high-tech exports from the highest tariff rates – e.g. some Chinese smartphone exports face ~20% – putting India at an artificial disadvantage if its rate is 25%.) The implication is that without relief, global supply chains could adjust away from India, undermining the country’s bid to become an electronics export hub.
Pharmaceuticals: India is often called the “pharmacy of the world,” and the U.S. generic drug market is arguably where this is most evident. Indian firms supply roughly 40–65% of all generic medicines used in the U.S., dominating segments of antibiotics, painkillers, and other essential generics In value terms, the U.S. accounts for about one-third of India’s pharma exports (nearly $9 billion in FY2024). Many Indian generics are 50–90% cheaper than branded equivalents, saving American patients and healthcare systems tens of billions annually (cheaper generics saved the U.S. about $408 billion in 2022 alone). Imposing tariffs on these drugs threatens to raise U.S. healthcare costs and create drug shortages, since Indian companies operate on thin margins (often 10–15%). Analysts cautioned that a 25% tariff, if not passed on to U.S. consumers, could render many Indian generic exports “unviable,” possibly forcing companies to withdraw products. This could lead to severe shortages in the U.S. market. Indian pharma industry groups have been lobbying for exemptions, arguing that unlike other goods, medicine is a strategic import for U.S. health security. So far, the tariff technically applies to pharmaceuticals (it’s an across-the-board measure), but it remains to be seen if the U.S. grants carve-outs in practice. Any prolonged tariff on pharma would hurt India’s $13 billion pharma export industry and disrupt global drug supply chains. On the flip side, it could also backfire on the U.S. by driving up drug prices – a classic example of how interdependent economies suffer mutual pain in trade wars.
Gems and Jewelry: The United States is the largest market for India’s gems and jewelry, especially polished diamonds, gold jewelry, and costume jewelry. In 2024, over $10 billion of Indian gems and jewelry were exported to the U.S., about 30% of India’s global trade in this sector. A 25% tariff directly hits this high-value export category. Margins in the diamond cutting and jewelry business are slim, and Indian products will become significantly more expensive for American importers and consumers. The Gem and Jewellery Export Promotion Council (GJEPC) in India voiced deep concern, noting that such a tariff “will place immense pressure on every part of the value chain” and undermine decades of market development in the U.S.. Competing countries like Thailand or Belgium (for diamonds) and Turkey or Italy (for jewelry) could seize market share if they are subject to lower or no such tariffs. Indian exporters may need to find alternative markets for luxury goods or face an inventory glut. The broader implication is a loss of jobs in India’s gems sector (which employs millions, especially in Gujarat’s diamond hubs). This also hurts U.S. jewelry retailers who rely on Indian supply – demonstrating again how these tariffs cut both ways.
Textiles and Apparel: The Indian textile and garment industry is one of the country’s largest employers and export earners, and the U.S. is a top destination (around 27–30% of India’s textile/apparel exports). With tariffs jumping to 25%, Indian apparel is at risk of becoming uncompetitive in the price-sensitive U.S. retail market. Early signs are worrying: several U.S. buyers have reportedly advised Indian textile exporters to halt shipments – even for confirmed orders – until there is clarity or a resolution. The sudden 25% cost increase could lead to order cancellations as American importers turn to suppliers from countries like Bangladesh (which enjoys tariff-free or lower-tariff access for garments) or Vietnam. An apparel industry representative cautioned that Indian products would become 7–10% more expensive than some competitors’ even with the tariff disparities that already existed. That margin can decide whether a retailer switches sourcing. There are also reports that exporters in India’s textile hubs (like Tiruppur for knitwear) fear “mass layoffs” if U.S. orders dry up. Given that India exported about $8 billion in textiles and clothing to the U.S. last year, the stake is huge. If half of that faces trouble, entire regional economies could suffer. The timing is unfortunate too – the tariff hit comes just after India signed an FTA with the UK (offering hope of export growth there) and while negotiating one with the EU. The U.S. action thus threatens to nullify gains from other trade deals and divert orders to competitors.
Others: Virtually every sector – leather footwear, furniture, chemicals, auto parts, agricultural products like seafood or rice – is impacted by the blanket tariff. For instance, India is a major supplier of shrimp and seafood to the U.S., but now faces 25% duty while countries like Ecuador face 15%. Indian marine product exporters worry that customers will shift to Ecuador or Vietnam for seafood imports, though some note that capacity can’t shift overnight and buyers might hold off until negotiations conclude. Similarly, Indian handicrafts and furniture exporters fear losing market share to Southeast Asian rivals. Auto parts (an area where India was expanding exports) become pricier for U.S. manufacturers who import them. Even IT services could feel indirect heat – while services aren’t tariffed, strained relations might influence U.S. firms’ outsourcing decisions if the dispute escalates.
In aggregate, about $85–87 billion of India’s goods exports to the U.S. would be subject to this 25% tariff. Estimates suggest if fully applied, the tariffs could shave off around 0.5% from India’s GDP growth due to export losses and knock-on effects However, much depends on the duration of the tariffs – whether this is a short-lived negotiating tactic or a longer trade rupture. Indian officials and businesses are hoping for the former (a temporary pain until a deal is struck), but preparing contingency plans in case of the latter.
Comparative Disadvantage: India vs. Others
One of India’s biggest concerns is that it has been singled out for harsher treatment compared to other countries negotiating trade terms with the Trump administration. Throughout 2025, the U.S. has been striking bilateral tariff deals worldwide, leveraging Trump’s threat of global tariffs. By August 1, the U.S. had announced agreements with numerous partners – creating a patchwork of differentiated tariff rates. In this landscape, India’s 25% stands out as one of the highest new tariffs among major economies. For context:
Japan and the European Union (EU) – both close U.S. allies – reached deals that kept their tariffs to 15% on exports to the U.S. These were part of Trump’s push for “reciprocal” tariffs under negotiated quotas. A 15% rate, while higher than zero, is far more manageable than 25% and suggests significant concessions were made. (Japan, for instance, reportedly offered large reciprocal investments in the U.S. and purchases of American goods to secure a lower tariff.)
South Korea – another ally – similarly got a 15% rate, likely also by agreeing to some U.S. demands (Seoul had renegotiated the KORUS FTA back in 2018 and perhaps built on that foundation).
Indonesia and the Philippines – emerging Asian partners – saw tariffs around 19–20% after making deals. Notably, Pakistan, which was initially lumped in the 25% tier with India, managed to secure a trade deal lowering its U.S. tariff rate to 19% just days before the deadline. In a dramatic move, Trump announced a deal with Pakistan to jointly develop its oil reserves, pointedly commenting “Who knows, maybe they’ll be selling oil to India some day!”. This was a clear geopolitical signal alongside a tariff concession – rewarding Pakistan and hinting at it supplanting Russia as an energy supplier to India in the future.
Vietnam – a direct competitor to India in textiles and electronics – was reportedly pegged at 20% tariff. Vietnam’s large existing exports of furniture, apparel, and phones to the U.S. now have a 5 percentage-point edge over India’s. Bangladesh and Turkey (major apparel rivals) are also in the 15–20% rangeas per early reports.
China – the biggest trade rival – is a special case. U.S.-China tariffs largely predate this wave (from the 2018–2019 trade war). While Beijing hasn’t signed a new deal under Trump’s 2025 campaign yet, it’s expected to get off easier because of its leverage in critical areas like rare earth minerals (vital for U.S. industry). Negotiations with China were said to be at an advanced stage, potentially yielding a partial easing rather than escalation, since decoupling fully from China is costly for the U.S. supply chain.
What this means for India is a stark competitive disadvantage. Indian goods now face higher U.S. tariffs than those from almost any other major economy. This discrepancy, even if short-term, can cause immediate trade diversion. American importers will favor countries where tariffs (and thus costs) are lower – a phenomenon already being observed in sectors like apparel and electronics. New Delhi fears a loss of market share that could persist even if tariffs are later removed, because once buyers establish alternate supplier relationships, switching back isn’t guaranteed.
Indian officials have openly voiced frustration that India was expecting to be treated on par with friends like Japan or at worst given a rate similar to Vietnam’s, and felt blindsided by the 25% figure. This has political ramifications: it feeds a narrative that India’s strategic overtures to the U.S. (e.g. joining the Quad, deepening defense ties) were not enough to secure economic goodwill when it mattered. Some analysts in India caution that over-reliance on the U.S. market is risky, and this episode might accelerate India’s efforts to diversify export destinations (for instance, capitalizing on the UK trade deal and pushing to conclude an FTA with the EU quickly, or exploring markets in East Asia and Africa).
From Washington’s perspective, the tariff disparities are a deliberate carrot-stick strategy – countries that cooperated on U.S. terms got sweeter deals, while those that held out (or in India’s case, pursued independent policies with Russia/BRICS) got the stick. The U.S. is leveraging its market power to force policy changes among partners, effectively weaponizing supply chains and trading flows for strategic ends. This is a defining feature of the “America First” trade diplomacy under Trump’s second term.
Legal Framework and WTO Considerations
The United States has invoked domestic legal authorities to justify these tariff actions, chiefly citing the Trade Expansion Act Section 232 (national security) and Trade Act Section 301 (unfair trade practices), as well as the International Emergency Economic Powers Act (IEEPA) for broad economic sanctions. In public, President Trump frames the tariffs as necessary for U.S. national security and as a response to unfair practices. For example, steel and aluminum tariffs since 2018 were imposed under Section 232, alleging that reliance on foreign metals threatened U.S. security. Similarly, the administration could claim India’s barriers warrant Section 301 action (the same legal tool used against China’s IP practices in 2018).
However, in the international trading system, these justifications are contentious. World Trade Organization (WTO) rules generally prohibit raising tariffs above bound levels (for the U.S., most tariffs are bound at very low rates) except under specific exceptions. The U.S. is leaning on the national security exception (Article XXI of GATT), which is a self-judged clause allowing measures “necessary for the protection of essential security interests” during war or emergencies. Historically, countries invoked this sparingly, but the Trump administration’s broad use of it (for steel, tech, and now potentially general tariffs) has tested the limits.
WTO panels in late 2022 ruled that the U.S. Section 232 steel/aluminum tariffs violated WTO obligations, rejecting the idea that they were bona fide security measures in a war scenario. The panels (in disputes brought by China, India, EU and others) found that simply invoking “security” doesn’t grant unfettered freedom – there are bounds to its use. The U.S. bluntly disagrees with these rulings, maintaining that national security is not justiciable by the WTO. In practice, the U.S. appealed those panel decisions “into the void,” as the WTO Appellate Body is currently paralyzed (a situation the U.S. itself caused by blocking judge appointments). This means dispute enforcement is stalled – members like India have “won” in principle but cannot get authorization for retaliation via the WTO appeals process, because the appeals are in limbo.
India has been actively challenging U.S. tariffs through the WTO and contemplating its legal options:
WTO Disputes: India filed disputes against the 2018 steel and aluminum tariffs and recently consulted on newer U.S. measures. As noted, while panels have sided with complainants, the U.S. stance and Appellate Body impasse blunt the impact. India could escalate by joining other countries in a makeshift appeals mechanism (MPIA) excluding the U.S., or by proceeding unilaterally.
Retaliatory Tariffs: Under WTO norms, if a violation is found, the affected country can impose commensurate retaliatory tariffs. Back in 2019, India prepared a list of retaliatory tariffs (on U.S. agricultural goods like almonds and apples) in response to U.S. metals tariffs, but largely held off pending negotiations. It “reserved its right” to retaliate and even notified the WTO of potential duties. Given the new 25% tariff, India might dust off those plans. Some trade experts suggest India could impose its own tariffs on U.S. imports even without WTO authorization, as a political signal of resistance (the EU, Canada, and China did this in 2018 in limited fashion). However, this carries risks of further escalation and deviates from India’s general compliance with WTO rules.
Legal Argument – Abuse of Security Exception: India could formally dispute the 25% tariff as a GATT violation, arguing the U.S. is abusing the national security justification. It might cite prior WTO rulings that countries can’t use security as a blanket excuse for protectionism. But pursuing this legally might be more symbolic than effective, due to the lack of an appeal mechanism to enforce any victory.
All this is happening against the backdrop of a weakened multilateral trading system. The WTO’s Appellate Body remains defunct (largely due to U.S. obstruction), so binding dispute resolution is broken. The WTO Ministerial discussions to reform the system are ongoing but slow. In the meantime, trade conflicts are being managed through bilateral bargains or tit-for-tat retaliation, rather than through adjudication. The India-U.S. tariff spat exemplifies this: both sides have referenced WTO rights, but ultimately they are negotiating politically, outside Geneva.
From India’s viewpoint, the WTO’s limitations mean it must rely on diplomacy and coalition-building. India has aligned with others in criticizing U.S. invocation of security for economic measures. There’s an inherent contradiction: the U.S. insists its actions are WTO-legal (security exception), yet its very approach undermines the WTO’s credibility. India, traditionally a supporter of multilateral rules, is now forced to consider unilateral countermeasures or fast-tracked trade deals as workarounds.
India’s Official Response and Strategy
The Indian government’s initial reaction to Trump’s tariff announcement was measured and cautious. The Ministry of Commerce and Industry released a statement noting that it had “taken note” of the U.S. President’s remarks and was studying the implications. Officials emphasized that India and the U.S. have been engaged in ongoing talks to reach a “fair, balanced, and mutually beneficial” agreement, and India remains committed to this process despite the setback.
Key elements of India’s official stance include:
Emphasis on Diplomacy: New Delhi underscored that channels of communication remain open. The government refrained from any combative rhetoric. Instead, it pointed to the positive trajectory of talks so far and expressed hope that a solution would emerge through dialogue. The External Affairs Ministry spokesman, when pressed by media, highlighted that India-U.S. ties have “weathered several transitions and challenges” in the past and that the focus remains on the substantive agenda both sides are committed to. This suggests India does not want this episode to derail the broader strategic partnership (defense, Indo-Pacific cooperation, etc.) and is signaling patience and resolve.
Protecting Core Interests: At the same time, India’s statement put its red lines front and center – namely, that national interest and the welfare of its citizens will guide any deal. The Commerce Ministry explicitly mentioned the priority of protecting farmers, small businesses (MSMEs), and entrepreneurs in trade negotiations. This mirrors India’s stance in all recent trade talks (e.g., India walked out of RCEP in 2019 on concerns for farmers and industry). By reiterating this, India is telegraphing that while it seeks a compromise, it will not simply capitulate to U.S. demands that hurt its vulnerable sectors. For example, opening agriculture or dairy markets widely to U.S. products could harm Indian farmers – a politically sensitive issue. India is holding firm that any bilateral pact must respect these sensitivities, just as its deal with the UK did.
Reference to Other Deals: Interestingly, India’s statement referenced the recently concluded Comprehensive Economic and Trade Agreement (CETA) with the United Kingdom (July 2025). By doing so, India signaled two things:
It is capable of signing major trade agreements when its interests are accommodated,
It won’t settle for less with the U.S. than it achieved with the UK in terms of balanced outcomes.
The subtext is that India has options – it can deepen trade with other partners if the U.S. route becomes untenable. It’s also a gentle reminder that India made concessions in the UK deal (for instance, on liquor tariffs, data exchange, etc.) but also secured protections for its sectors; it expects a similar give-and-take with Washington.
No Immediate Retaliation Announced: Notably, India did not announce any retaliatory tariffs or sanctions of its own in response. This restraint likely reflects a desire to de-escalate and keep negotiations on track. Commerce Minister Piyush Goyal and other officials have indicated that all necessary steps will be taken to safeguard India’s interests, but for now, those steps appear to be diplomatic – seeking U.S. exemptions or reductions – rather than tit-for-tat tariffs. India has, however, kept the option of WTO action and reciprocal measures on the table by saying it will “examine implications” thoroughly.
Engagement with U.S. Delegation: A U.S. negotiating team is expected to visit India later in August 2025. India’s strategy is to use that opportunity to press for a resolution. New Delhi will likely bring proposals to address some U.S. concerns: perhaps offering to increase imports of American goods (like energy or civilian aircraft), further reduce tariffs in select categories, or update some regulatory standards – but all within limits that don’t politically backfire at home. India might also leverage areas of U.S. interest such as big defense purchases or opening up to U.S. tech investments as bargaining chips.
In essence, India’s official approach is a blend of firmness and conciliation – standing firm on core interests and not reacting impulsively, while conveying openness to continue talks. This calibrated response aims to avoid a breakdown in relations. It also positions India as a responsible player in contrast to Trump’s abrupt tariff move, thereby hoping to garner international understanding and perhaps quiet support.
Industry and Business Reactions in India
Indian industry groups and exporters have responded with dismay and concern to the tariff announcement. Many had not anticipated an outcome this harsh and are now scrambling to assess impacts and contingency plans. Some notable reactions and trends:
Exporters’ Associations: The Federation of Indian Export Organisations (FIEO) termed the 25% tariff a “major setback for Indian exporters”, particularly in labor-intensive sectors like textiles, footwear, and furniture.
Textile Hubs: Representatives from Tiruppur Exporters’ Association (a major knitwear exporting cluster) tried to strike a hopeful tone publicly, calling the tariff “just a negotiation tactic” and expressing optimism that a trade agreement will be reached “imminently” to remove it. However, privately, many textile exporters are indeed pausing shipments. There’s a real fear of order cancellations and payment issues for goods in transit.
Gems & Jewelry Sector: As mentioned, leaders like Kirit Bhansali of GJEPC have been vocal. They highlighted the $10 billion export figure and 30% dependence on the U.S. market, warning of pressure on the entire chain from miners to artisans.
Pharma and Healthcare: The pharmaceutical industry’s response has been somewhat calmer, given that medicine is a necessity and there’s hope that practical considerations will lead the U.S. to exempt or quickly reverse tariffs on critical drugs. Indian pharma companies, as Reuters reported in February, believe they can still “retain their dominant market share” even with tariffs, due to lack of alternatives and their cost competitiveness.
Electronics Manufacturers: Big players like Apple and Samsung are in a wait-and-watch mode but clearly alarmed. An anonymous industry official told media “We are shocked at what President Trump has announced… If maintained, India will lose the electronics manufacturing business for the U.S.” Apple’s suppliers are considering shifting some production or redirecting output to non-U.S. markets. Samsung’s global COO for mobile, Won-Joon Choi, even stated that Samsung had prepared diversification of factories and can shift production locations depending on the final tariff decision. This highlights a risk: global firms using India as a base have the flexibility to move – investment can be footloose. If India’s cost advantage disappears due to tariffs, they’ll relocate production to Vietnam, China (if that becomes viable again), or elsewhere. This is a setback for India’s “Make in India” ambition just when it was yielding results.
In summary, India’s industry is rattled but also rallying to adapt. The immediate reaction is a push for speedy negotiations to remove the tariffs. If that fails, expect a pivot to finding alternate markets (e.g., redirecting exports to Europe, Middle East, etc.), though replacing the U.S. demand in the short run is challenging. The situation has also united various industry lobbies to speak in one voice about the need for a stable and fair trade environment – a message they are sending to both Washington and New Delhi.
Conclusion
The imposition of a 25% U.S. tariff on Indian goods – paired with threats of penalties over India’s Russia ties – represents far more than just a bilateral trade squabble. It epitomizes a new era where economic leverage is deployed as an instrument of geopolitical strategy. In this case, the United States is using access to its vast market as a bargaining chip not only to extract better trade terms but also to influence India’s foreign policy orientation (away from Russia and perhaps to moderate its BRICS stance). This blending of trade policy with strategic goals is a hallmark of the transformed international diplomacy in the 2020s.
For India, this episode is a stern test of its doctrine of “strategic autonomy.” India has long prided itself on maintaining independence in global affairs – engaging all major powers, joining groupings like BRICS and the Quad simultaneously, and refusing to be pigeonholed. Now, it faces punitive measures for pursuing certain ties (with Russia) even as it tries to deepen others (with the U.S.). Navigating this will require deft diplomacy, tactical flexibility, and steadfast focus on national interests.
Some key takeaways and forward-looking points for India include:
Balancing Economics and Geopolitics: India will need to carefully balance economic interests with strategic partnerships. The U.S. is irreplaceable in certain aspects (technology, defense cooperation, market size), but India cannot completely sever historical ties with Russia overnight without harming its own security and energy needs. Going forward, India might seek to gradually reduce dependence on Russia (a process already underway in defense procurement) to alleviate U.S. pressure, while urging the U.S. to appreciate its energy needs and security concerns in its neighborhood. In essence, India must communicate that it shares many values and interests with the West, but as a developing nation it has its own constraints.
Trade Negotiation Resolve: The current impasse underscores that India must be ready to drive a hard bargain to protect its economic interests. If a deal is to be struck with the U.S., India will have to negotiate terms that restore preferential tariff rates. This may involve offering concessions like greater access in some sectors or big-ticket purchases. But as India’s response showed, it will insist on safeguarding sectors like agriculture and small industries. The art of the deal will be finding creative solutions – e.g., tariff-rate quotas, phased market openings, mutual standards recognition – that allow both sides to claim victory. India will also seek to institutionalize a dispute resolution mechanism in any BTA so that such tariff shocks aren’t repeated arbitrarily.
Supply Chain Resilience and Diversification: Indian businesses have learned the hard way that over-reliance on a single market or production base is risky. Just as global firms are now wary of over-reliance on one country (like how companies are China-plus-one diversifying), India too might accelerate efforts to diversify its export markets. Expediting trade agreements with the EU, Canada, Australia, and deepening ties in Asia and Africa could mitigate the impact of U.S. volatility. Domestically, there may be a push to make Indian industry more competitive (lowering costs, improving quality) so that even with some tariffs, they can survive. Government schemes like PLI (Production Linked Incentives) in electronics, or export incentives for textiles, become even more crucial to keep India an attractive sourcing hub despite external headwinds.
Multilateral and Minilateral Forums: The tariff war also has global implications. It highlights the need for reforming institutions like the WTO to handle security-linked trade measures. India might redouble efforts with the EU, Japan, and others to restore the WTO Appellate Body and update rules, so that countries cannot so easily use national security as a blanket justification. In parallel, forums like the G20 (where India currently holds presidency in 2025) could be used to raise concerns about trade coercion and make the case for fairness and rules-based order. Ironically, India’s position as a leader of the Global South could be bolstered as it stands up to unilateral actions – many developing countries empathize with being caught in great power crossfire. This could drive India to take a more vocal leadership role in shaping new trade norms that prevent abuse of measures like tariffs for political ends.
Strategic Patience with the U.S.: Despite the turbulence, both New Delhi and Washington know the strategic stakes are high. Over the past 25 years, India-U.S. relations have improved across multiple domains – defense (e.g., foundational military agreements, Quad cooperation), energy, people-to-people ties, and shared concerns about a rising China. These gains are not easily reversible. The tariff fight, if prolonged, could indeed dampen the warmth and prompt India to hedge bets (e.g., reconsidering participation in U.S.-led initiatives). But if resolved, it could also clear the air for a stronger partnership. It is noteworthy that Trump reportedly sought a phone call with PM Modi soon after – likely to negotiate directly. High-level engagement might find a face-saving formula for both sides. Additionally, Trump is slated to visit India later in 2025 (unless the trip is derailed by a lack of agreement). Both governments will want some positive outcome by then. Thus, strategic patience and continued engagement, rather than rupture, seem to be India’s current course.
In conclusion, the 25% tariff saga illustrates how trade diplomacy in 2025 is about far more than tariffs – it’s a theatre where questions of currency dominance, alliance loyalty, and global order are being contested. For a country like India, which aims to emerge as a leading power and a “pole” in a multipolar world by 2047, yielding to pressure on one front could set precedents on others. Therefore, India’s approach is to stand its ground where it must, negotiate where it can, and always keep the long-term relationship in mind. The U.S.-India partnership has immense potential, but this episode shows it requires constant calibration to ensure mutual respect and benefit.
As negotiations continue in the coming weeks, the world will watch closely. A compromise that rolls back tariffs and addresses core concerns would reaffirm the resilience of U.S.-India ties. Failure to reach one could push India to rethink its alignment and spur new coalitions (there’s even talk of reviving a Russia-India-China grouping, though that has its own complications). Ultimately, both democracies have a stake in not just managing this dispute, but in setting a constructive example of how to reconcile economic and strategic interests in an era of great power competition. The hope is that wisdom prevails, producing a solution that strengthens the foundation of one of the 21st century’s most important bilateral relationships – rather than weakening it.
Context: As people associated with left-wing extremism are being killed or are surrendering and the forested areas under their control come into the government’s fold, the civilian administration is recalibrating its approach to deliver services in the face of few roads, low Internet connectivity and scattered electricity supply, finds Shubhomoy Sikdar
As far as UPSC CSE mains is concerned, “naxalism” has been a recurring theme.
GS paper III
Linkages between development and spread of extremism.
PYQ: 2022
Naxalism is a social, economic and development issues manifesting as a violent internal security threat. In this context, discuss the emerging issues and suggest a multilayered strategy to tackle the menace of Naxalism.
PYQ: 2018
Left Wing Extremism (LWE) is showing a downward trend, but still affects many parts of the country. Briefly explain the Government of India’s approach to counter the challenges posed by LWE.
PYQ: 2015
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, discuss the corrective strategies needed to win the Left Wing Extremism (LWE) doctrine affected citizens back into the mainstream of social and economic growth.
What does Naxalism mean?
Naxalism, which is also known as Left Wing Extremism (LWE), is a violent movement based on Maoist ideas that wants to use armed revolution to bring down the Indian government. At first, it was a fight for land rights and justice for the impoverished and indigenous people, but it later escalated into an armed uprising.
The Naxalbari Uprising in 1967 was the beginning of it all. In 1967, a handful of extreme Communists spearheaded a violent demonstration by landless farmers against landowners in Naxalbari, a small village in West Bengal.
Charu Majumdar, Kanu Sanyal, and Jangal Santhal were the leaders. They were inspired by Mao Zedong’s revolution in China and thought that armed resistance was the best way to get justice.
Their slogan, “Land to the tiller,” was similar to the call for poor farmers to own the land they work on. The movement suddenly became violent, and the police had to step in. The movement fell apart for a while after Charu Majumdar died in 1972.
The Movement Grows After Charu Majumdar (1970s–2000)
After the first phase, Naxalism broke up into a lot of little groups all over India. Vinod Mishra (Liberation group) and Kanhai Chatterjee (Dakshin Desh) are two new leaders who came to power.
People’s War Group (PWG) and Maoist Communist Centre (MCC) have grown in power in Bihar and Andhra Pradesh. There were a lot of violent fights between Naxalites and private armies, such Ranvir Sena, especially in areas of Bihar where there were caste conflicts.
A New Force: The Rise of CPI (Maoist) from 2004 on The Communist Party of India (Maoist) was formed in 2004 after two big groups, the PWG and the MCC, joined forces. It is the strongest Naxal group thus far. They put together a military group named the People’s Liberation Guerrilla Army (PLGA).
Their aim: to create a “Red Corridor” from Nepal to South India by controlling tribal and forest regions through violence and intimidation.
Maoist Strategy and Tactics
They have a three-step plan for war:
Set up a base in distant tribal areas
Grow your power and focus on government infrastructure
Finally, start a full-scale fight to take over.
They kill people who disagree with them, tear down schools and roads, and tax local contractors.
Maoist ideas praise violence and say they are fighting for the rights of the impoverished and indigenous people.
1. Land-Related Factors
Failure of land reforms & evasion of ceiling laws LWE traces its roots to agrarian inequality—beginning with the 1967 Naxalbari uprising when land reforms failed in West Bengal (failure to redistribute excess land led to tribal revolt).
Special exemptions & encroachments on government/community lands Studies have shown widespread alienation of government land by powerful local elites. In Odisha’s Koraput region (Maoist‑affected), lands meant for tribal cultivation were encroached, stoking grievance-driven rebellion.
Lack of title/public land rights & non-regularization of traditional rights Despite the Forest Rights Act, 2006 (FRA), millions of claims are pending. In Kerala’s Muthanga incident (2003), tribals occupied sanctuary land demanding promised pattas. The state forcibly evicted them, leading to conflict and loss of trust in governance.
Eviction from traditionally used tribal land At Niyamgiri (Odisha), Vedanta’s proposed bauxite mining was only blocked after Gram Sabhas (under FRA and PESA) refused consent, asserting ancestral rights. The case highlights how forcible displacement fuels tribal solidarity—often mobilized politically.
2. Displacement & Forced Evictions
Major infrastructure projects causing displacement The Rihand Dam in Singrauli displaced over 50,000 people across multiple phases, with no resettlement. Research highlights repetitive displacements and lost livelihoods—breeding resentment and support for insurgents.
Mining in forested regions In Chhattisgarh’s Hasdeo Arand, massive coal mining has displaced Adivasi communities, degraded environment, and fueled local opposition—often leading to Maoist influence in protest zones.
3. Livelihood-Related Causes
Food insecurity and corruption in PDS Studies corroborate that poor PDS functioning in LWE zones worsens food insecurity, making deprived families susceptible to extremist appeals.
Disruption of traditional occupations & lack of alternative livelihoods In Koraput and other districts, traditional livelihoods (like gathering forest produce) have declined without replacement jobs. Disengaged youth become easier to recruit for extremist cadres.
Deprivation from common property resources The sanctioned establishment of tiger corridors (e.g. Telangana) has threatened grazing and forest access—stirring tribal resistance. These conflicts amplify perceptions of denial of customary rights
4. Social Exclusion & Denial of Rights
Untouchability & caste-based exclusion While less directly documented, multiple reports point out that exclusion of SC/ST communities—e.g., denial of entitlements and representation—feeds into LWE recruitment by portraying the state as indifferent or hostile.
Poor implementation of special protections Even after laws like SC/ST (PoA) Act and Bonded Labour Abolition, many victims remain unprotected due to weak enforcement. Academic reviews show rising distrust in state machinery in tribal districts.
5. Governance Deficit and Public Service Failure
Corruption and non-availability of services In districts under LWE influence, governance indices are poor. Delineations reveal absenteeism and incompetence of public officials in health, education, and welfare delivery.
Misuse of police powers & lack of justice Reports of fake encounters, arbitrary detentions, and rights violations (especially during Operation Kagar or Salwa Judum) have deepened alienation. Salwa Judum, a state-supported militia in Chhattisgarh, led to displacement of tribals, human rights abuses, and strengthened Naxal narratives of state oppression.
Electoral distortions & poor Panchayat governance Tribal regions often fail to gain real voice despite PESA and FRA. Gram Sabhas are bypassed or intimidated—weakening participatory decision-making and reinforcing distrust in institutional democracy.
Cause Category
Case Study / Region
Core Finding
Land Rights
Naxalbari / Koraput / Muthanga / Niyamgiri
Denied land rights ignite tribal instability and revolt
Displacement
Rihand Dam, Hasdeo Arand
Repeated displacement without compensation fuels dissent
Livelihood & Food Security
Koraput, PDS failures, loss of forest income
Loss of traditional livelihoods leads to radicalisation
Social Exclusion
Failures in SC/ST Act enforcement
State inaction exacerbates exclusion
Governance Deficit
Salwa Judum, absenteeism, lack of public services
Failures of justice and administration strengthen extremism
The Government of India’s Approach
The Government of India believes in a holistic long-term policy in the areas of security, development, ensuring rights and entitlements of local communities, improving governance and perception management to combat LWE.
Most of the security related measures, apart from deployment of CAPFs, are aimed at assisting capacity building by the State forces.
On the development front, an Integrated Action Plan (now called Additional Central Assistance to LWE affected districts) covering 88 affected districts aims at providing public infrastructure and services and is under implementation since 2010. Further, an ambitious Road Development Plan has been envisaged for LWE areas.
An Empowered Group of Officers closely monitors the progress of flagship schemes. Special emphasis is being laid on the implementation of the Forest Rights Act and ensuring entitlement of local communities over Minor Forest Produce.
The government uses the ‘Clear, hold and develop’ strategy as a tool to win back the support of the tribal population, who overwhelmingly appear to sympathize with the extremists. ‘Police’ and ‘Public Order’ being State subjects, action on maintenance of law and order lies primarily in the domain of the State Governments. The Central Government closely monitors the situation and supplements and coordinates their efforts in several ways. These include:
Providing Central Armed Police Forces (CAPFs) and Commando Battalion for Resolute Action (CoBRA); Sanction of India Reserve (IR) battalions, setting up of Counter Insurgency and Anti-Terrorism (CIAT) schools
Modernisation and upgradation of the State Police and their Intelligence apparatus under the Scheme for Modernization of State Police Forces (MPF scheme)
Reimbursement of security related expenditure under the Security Related Expenditure (SRE) Scheme
Providing helicopters for anti-naxal operations, assistance in training of State Police through the Ministry of Defence, the Central Police Organisations and the Bureau of Police Research and Development; Sharing of Intelligence
facilitating inter-State coordination; assistance in community policing and civic action programmes etc.
The underlying philosophy is to enhance the capacity of the State Governments to tackle the Maoist menace in a concerted manner.
Review and Monitoring Mechanisms
To give special focus to development in the LWE affected areas, MHA has been reviewing the LWE situation regularly through a number of review and monitoring mechanisms. Reviews cover operational and developmental issues including those of other Ministries of the Government of India.
These mechanisms include:
The Union Home Minister convenes the meetings of Chief Ministers of LWE affected States.
The Union Home Minister and the Minister of States (Home) visit LWE affected States to review the LWE situation. Review Group Meeting under the chairmanship of the Cabinet Secretary.
Meetings by Union Home Secretary with Secretaries of Central Ministries and Chief Secretaries of the LWE affected States and Central Ministries.
Empowered Committee under Additional Secretary (LWE) to review the progress of various developmental schemes/projects.
Important Schemes for LWE Affected States
SAMADHAN Scheme: During a review meeting of the Chief Ministers of the LWE affected States in May, 2017, the Union Home Minister enunciated an integrated strategy through which the LWE can be countered with full force and competence. The new strategy is called SAMADHAN, which is a compilation of short term and long term policies formulated at different levels.
Offensive strategy: In 2022, security forces have achieved unprecedented success in Operation Octopus, Operation Double Bull, and Operation Chakrabandha in fight against LWE.
Security Related Expenditure (SRE) Scheme: Under the Security Related Expenditure (SRE) Scheme, the Central Government reimburses security related expenditure for LWE affected districts and districts earmarked for monitoring. The reimbursement includes training and operational needs of security forces, ex-gratia payment to the family of civilians/security forces killed/injured in LWE violence, compensation to Left Wing Extremist cadres who surrendered in accordance with the surrender and rehabilitation policy of the concerned State Government, community policing, Security related infrastructure for village defence committees and publicity materials.
Special Central Assistance (SCA) for 30 most LWE affected districts: The main objective of the Scheme is to fill the critical gaps in Public infrastructure and Services, which are of emergent nature. Special Infrastructure Scheme, along with Construction of Fortified Police Stations in the LWE affected States. The Ministry had sanctioned 400 police stations in 10 LWE affected States. Of these 399 of PSs have been completed.
Assistance to Central Agencies for LWE management Scheme: Under the Scheme, assistance is provided to Central Agencies (CAPFs/IAF etc.) for strengthening of infrastructure and hiring charges for Helicopters.
Civic Action Programme (CAP): CAP in LWE affected areas has been implemented since 2010-11 to bridge the gaps between Security Forces(SFs) and local people through personal interaction and bring the human face of SFs before the local population. Under the Scheme, funds are released to the CAPFs, deployed in LWE affected areas, for conducting various civic activities for the welfare of the local people.
Media Plan: The Maoists have been misguiding and luring the innocent tribals/ local population in LWE affected areas by their So-called poor-friendly revolution through petty incentives or by following their coercive strategy. Their false propaganda is targeted against the security forces and the democratic setup. Therefore, the Government is implementing this Scheme in LWE affected areas.
Under the scheme activities like Tribal Youth Exchange programmes organised by Nehru Yuva Kendra Sangathan (NYKS), radio jingles, documentaries, pamphlets etc. are being conducted.
Road Requirement Plan-I (RRP-I and RRP-II) for LWE affected areas: This Scheme is being implemented by Ministry of Road Transport & Highways for improving road connectivity in 34 LWE affected districts of 8 States i.e. Andhra Pradesh, Bihar, Chhattisgarh, Jharkhand, Madhya Pradesh, Maharashtra, Odisha and Uttar Pradesh.
LWE Mobile Tower Project: To improve mobile connectivity in the LWE areas, the Government approved installation of mobile towers in LWE affected States and 2335 mobile towers have been installed in Phase-I. Phase-II of the project has been approved by the Government of India, under which 4072 mobile towers, will be installed in LWE affected States.
Aspirational District: The Ministry of Home Affairs has been tasked with the monitoring of Aspirational districts programme in 35 LWE affected districts. GIS Mapping: The project has been initiated for mapping of financial services, school, post offices, health facilities, mobile towers, PDS services, roads and security features etc. in a time bound manner. This will help the stakeholder to make informed decisions on developmental and security related issues.
Unified Command: A Unified Command has been set up in the States of Chhattisgarh, Jharkhand, Odisha and West Bengal. The Unified Command has officers from the security establishment, besides civilian officers representing the civil administration and it will carry out carefully planned counter LWE measures.
PESA implementation: The Left Wing Extremism affected States have been asked to effectively implement the provisions of the Panchayats (Extension to the Scheduled Areas) Act, 1996 (PESA) on priority, which categorically assigns rights over minor forest produce to the Gram Sabhas. Skill Development in 34 Districts of LWE under the ‘Pradhan Mantri Kaushal Vikas Yojana’ (PMKVY).
Reasons behind decline of Naxalism
The insurgency has been significantly hurt by a mix of better efforts by the government, changes in the political economy, and internal problems inside the group. The main causes for the drop in violence are:
More security personnel are present in the LWE-affected States.
Loss of leaders and cadres due to arrests, surrenders, and desertions.
Loss of strongholds, ideology losing its attractiveness, and a crisis in leadership
The government is working on a rehabilitation program, and the states that were harmed are doing better on social and economic issues.
Better keeping an eye on development programs in communities that have been affected
After a prolonged legal battle over sharing Mahanadi river water in a designated tribunal, Odisha and Chhattisgarh have now expressed willingness to resolve the dispute amicably between themselves.
UPSC CSE Relevance:
UPSC CSE in prelims examination has focused on different . A case in point is a following PYQ.
UPSC PYQ 2021:
With reference to the Indus river system, of the following four rivers, three of them pour into one of them which joins the Indus direct. Among the following, which one is such river that joins the Indus direct? A) Chenab B) Jhelum C) Ravi D) Sutlej
UPSC PYQ 2017:
Q: With reference to river Teesta, consider the following statements : 1. The source of river Teesta is the same as that of Brahmaputra but it flows through Sikkim, 2. River Rangeet originates in Sikkim and it is a tributary of river Teesta. 3. River Teesta flows into Bay of Bengal on the border of India and Bangladesh. Which of the statements given above is/are correct? A) 1 and 3 only B) 2 only C) 2 and 3 only D) 1, 2 and 3
Mahanadi River:
Facts:
lifeline of Odisha
originates from the Amarkantak hills in Bastar Plateau of Chhattisgarh.
It flows for a total length of 851 kilometres, of which 494 km lie within Odisha, before emptying into the Bay of Bengal.
States in the basin : Chhattisgarh (52.42%), Odisha (47.14%), Maharashtra (0.23%), Madhya Pradesh (0.11%), and Jharkhand (0.1%)
Tributaries:
Left Bank Tributaries:
Seonath
Hasdeo
Mand
Ib
Right Bank Tributaries:
Ong
Tel
Jonk
The dispute:
Over time, Odisha observed a considerable decline in the flow of Mahanadi waters entering its territory, attributing this to Chhattisgarh’s extensive upstream construction and increased water usage. Odisha has raised concerns that the reduced river flow has adversely affected irrigation, drinking water supply, and the ecological balance of its sensitive coastal areas.
In contrast, Chhattisgarh maintains that 52.9% of the Mahanadi’s total catchment area — and 89.9% of the catchment area up to the Hirakud Dam — lies within its borders, giving it the rightful claim to utilise the river’s waters.
Odisha filed a suit in the Supreme Court on the matter of Mahanadi water dispute. At the final hearing of this suit on January 23, 2018, the top court directed the Centre to constitute a tribunal.
Accordingly, the Ministry of Water Resources, River Development and Ganga Rejuvenation constituted the Mahanadi Water Disputes Tribunal (MWDT) on March 12, 2018 under the Inter-State River Water Disputes Act, 1956.
Constitutional provisions:
As per VII Schedule
Entry 56 in Union List includes – Regulation and development of inter-State rivers and river valleys to the extent to which such regulation and development under the control of the Union is declared by Parliament by law to be expedient in the public interest.
Entry 17 in State List mentions – Water, that is to say, water supplies, irrigation and canals, drainage and embankments, water storage and water power subject to the provisions of entry 56 of List I.
Inter-State River Water Disputes Act, 1956:
As perabove constitutional provisions, Inter-State River Water Disputes Act, 1956 was legislated by Parliament. Major Provisions are :-
Negotiation and Consultation: The central government is required to first attempt to resolve the dispute through negotiation and consultation among the concerned states.
Constitution of Tribunal: If negotiations fail, the central government can within a year, by notification, establish a tribunal to resolve the dispute.
Tribunal Composition: The Tribunal typically consists of a Chairman and other members nominated by the Chief Justice of India from among sitting or retired High Court or Supreme Court judges.
Adjudication: The Tribunal has the power to investigate the dispute, hear evidence, and make a decision.
Bar on Supreme Court Jurisdiction: The Act explicitly bars the Supreme Court or any other court from directly entertaining any dispute that falls under the purview of the Tribunal.
Binding Decision: The decision of the Tribunal is published in the Official Gazette and is binding on the concerned state governments.
Scheme for Implementation: The central government can formulate a scheme to implement the Tribunal’s decision.
Bar on Levy of Seigniorage: The Act prohibits states from imposing levies on water use from an interstate river solely based on the location of conservation works within their territory.
Amendment in 2002: The Act was amended in 2002 to incorporate recommendations of the Sarkaria Commission, including time limits for establishing tribunals and delivering decisions.
Challenges:
Constitutional Ambiguities: The Constitution places water under the State List (Entry 17) while also giving the Parliament the power to regulate and develop interstate rivers under the Union List (Entry 56). This dual authority creates jurisdictional confusion and makes resolution difficult.
Loopholes in ISRWD Act 1956 as it does not lay down the principles and standards for resolution of water disputes objectively.
Ineffective Tribunal System: delayed proceedings with tribunals often taking years, sometimes decades, to deliver their awards.
For example, the Cauvery Water Disputes Tribunal, constituted in 1990, gave its final award in 2007, and the matter is still under litigation.
Lack of Enforcement Mechanism: Tribunal awards are often not strictly enforced. States may defy the decisions, and there is no strong mechanism to ensure compliance.
Limited Expertise: The tribunals’ composition is often limited to legal experts, lacking a multidisciplinary approach that includes hydrologists, environmental scientists, and other specialists, which is crucial for addressing the technical complexities of water management.
Post Award Litigations : The Supreme Court continues to entertain litigations on river water disputes over legal questions as well as under Article 21 which encompasses Right to Water within Right to Life further delaying resolution of dispute.
Politicization of Disputes: Water disputes are frequently exploited by political parties for electoral gains, turning the issue into a matter of regional pride and sentiment. This politicization makes it difficult for states to reach an amicable solution through negotiation.
Competing Demands: Increasing population, rapid urbanization, and the expansion of agriculture and industry have led to a surge in water demand. This creates intense competition among states for a limited resource.
For instance, states like Punjab and Haryana, which rely heavily on water-intensive crops like paddy, face acute water shortages.
Data Opacity: There is a lack of a centralized, transparent, and mutually acceptable water data repository. Without reliable data on river flow, rainfall, and water usage, it is challenging to establish a baseline for fair water allocation, and states often dispute the data presented.
Changing Rainfall Patterns: Climate change has led to erratic monsoon seasons, resulting in seasonal water shortages in some states and floods in others. This uneven distribution of water intensifies existing disputes.
Way Ahead:
Establish a Single, Permanent Tribunal: The current ad-hoc tribunal system is a major cause of delays. A single, permanent tribunal with multiple benches, as proposed in the Inter-State River Water Disputes (Amendment) Bill, 2019, would ensure faster resolution with a time-bound process.
Create a Centralized, Transparent Data Repository: Reliable and universally accepted data on river flows, water usage, and other hydrological information is crucial for fair allocation.
Enhance the Enforcement Mechanism: A strong enforcement mechanism, possibly overseen by a central authority, is necessary to ensure compliance. The establishment of the Cauvery Water Management Authority (CWMA) to implement the Supreme Court’s verdict on the Cauvery dispute is a step in this direction, though its effectiveness is still being tested.
Establish a Dispute Resolution Committee (DRC): Creating a negotiation and mediation body, as proposed in the 2019 Bill, to resolve disputes amicably before they escalate to a tribunal could save time and resources.
Include Technical Experts in Tribunals: To ensure a comprehensive understanding of the technical aspects of water management, tribunals should include not just legal experts but also hydrologists, environmental scientists, and other specialists.
The Reserve Bank of India’s surprise 50 basis points (bps) rate cut in early June 2024 has started showing its impact — with banks passing on the benefit to borrowers and loan growth picking up as a result. This development is important in the context of monetary policy transmission, bank credit availability, and economic recovery.
UPSC CSE Relevance:
UPSC CSE in prelims and mains examination has focused on Monetary policy committee , Tools of MPC, Impact on economy etc.
UPSC PYQ 2020:
Q: If the RBI decides to adopt an expansionist monetary policy, which of the following would it not do? 1.Cut and optimize the Statutory Liquidity Ratio 2.Increase the Marginal Standing Facility Rate 3.Cut the Bank Rate and Repo Rate Select the correct answer using the code given below: A) 1 and 2 only B) 2 only C) 1 and 3 only D) 1, 2 and 3
UPSC PYQ 2017:
Q:Which of the following statements is/are correct regarding the Monetary Policy Committee (MPC)? 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
About MPC:
Monetary Policy Framework Agreement:
The Government of India and Reserve Bank of India signed a Monetary Policy Framework Agreement on 20th February, 2015 (Urjit Patel Committee recommendation).
The objective of monetary policy framework is to primarily maintain price stability, while keeping in mind the objective of growth. The Monetary Policy Framework provides for inflation targeting to be set by GoI every 5 years. GoI uses CPI for the purpose of inflation targeting in India.
The inflation target is Consumer Price Index (CPI) inflation of 4% (+/- 2%).
What if failure to maintain inflation target:
The Central Government has notified the following as the factors that constitute failure to achieve the inflation target: (a) the average inflation is more than the upper tolerance level of the inflation target for any three consecutive quarters; or (b) the average inflation is less than the lower tolerance level for any three consecutive quarters.
Where the Bank fails to meet the inflation target, it shall set out in a report to the Central Government:
a. the reasons for failure to achieve the inflation target;
b. remedial actions proposed to be taken by the Bank; and
c. an estimate of the time-period within which the inflation target shall be achieved pursuant to timely implementation of proposed remedial actions.
MPC:
Monetary Policy Committee was constituted in 2016 as a statutory body under the RBI Act 1934.
Composition: 6 Members (3 from the RBI side and 3 from the GOI side).
RBI Governor – ex-officio chairperson
RBI Deputy Governor
One more member from RBI to be nominated by the Central Board of Directors.
3 other members are be appointed by the Central Government.
Term of office: Members hold office for 4yrs.
Eligible to reappoint: No
Quorum: 4 members
Decision based on the majority and binding on RBI.
Meeting: At least four time in a year.
Tools of MPC:
Quantitative tools:
Liquidity Adjustment Facility (LAF): The LAF refers to the Reserve Bank’s operations through which it injects/absorbs liquidity into/from the banking system. It consists of overnight as well as term repo/reverse repos (fixed as well as variable rates), SDF and MSF.
LAF Components:
Repo Rate: The interest rate at which the Reserve Bank provides liquidity under the liquidity adjustment facility (LAF) to all LAF participants against the collateral of government and other approved securities.
Reverse Repo Rate: The interest rate at which the Reserve Bank absorbs liquidity from banks against the collateral of eligible government securities under the LAF. Following the introduction of SDF, the fixed rate reverse repo operations will be at the discretion of the RBI for purposes specified from time to time.
Standing Deposit Facility (SDF) Rate: The rate at which the Reserve Bank accepts uncollateralised deposits, on an overnight basis, from all LAF participants. The SDF rate is placed at 25 basis points below the policy repo rate.
Marginal Standing Facility (MSF) Rate: The penal rate at which banks can borrow, on an overnight basis, from the Reserve Bank by dipping into their Statutory Liquidity Ratio (SLR) portfolio up to a predefined limit (2 per cent). This provides a safety valve against unanticipated liquidity shocks to the banking system. The MSF rate is placed at 25 basis points above the policy repo rate.
Bank Rate: The rate at which the Reserve Bank is ready to buy or rediscount bills of exchange or other commercial papers. The Bank Rate acts as the penal rate charged on banks for shortfalls in meeting their reserve requirements (cash reserve ratio and statutory liquidity ratio). The Bank Rate is published under Section 49 of the RBI Act, 1934. This rate has been aligned with the MSF rate and, changes automatically as and when the MSF rate changes alongside policy repo rate changes.
Cash Reserve Ratio (CRR): The average daily balance that a bank is required to maintain with the Reserve Bank as a per cent of its net demand and time liabilities (NDTL) as on the last Friday of the second preceding fortnight that the Reserve Bank may notify from time to time in the Official Gazette.
Statutory Liquidity Ratio (SLR): Every bank shall maintain in India assets, the value of which shall not be less than such percentage of the total of its demand and time liabilities in India as on the last Friday of the second preceding fortnight, as the Reserve Bank may, by notification in the Official Gazette, specify from time to time and such assets shall be maintained as may be specified in such notification (typically in unencumbered government securities, cash and gold).
Open Market Operations (OMOs): These include outright purchase/sale of government securities by the Reserve Bank for injection/absorption of durable liquidity in the banking system.
Qualitative Tools:
Margin Requirement: It refers to difference between the securities offered and amount borrowed by the banks.
Consumer Credit Regulation: Consumer Credit Regulation refers to issuing rules regarding down payments and maximum maturities of instalment credit for purchase of goods.
Rationing of credit: It is a monetary policy tool used by the Reserve Bank of India (RBI) to regulate the total volume of credit in the economy by setting limits on the amount of loans and advances that banks can extend, and in some cases, by prescribing ceilings for particular sectors or categories of loans
Moral suasion: It is a soft and informal method of credit control through which the Reserve Bank of India (RBI) appeals to or advises commercial banks to align their lending practices with the overall objectives of monetary policy. It does not involve any legal enforcement or penalties, making it a persuasive, rather than coercive, tool of selective credit regulation.
Direct Action: It refers to the measures taken by the Reserve Bank of India (RBI) against commercial banks that fail to comply with its regulatory guidelines or violate the prescribed norms. It involves penal or corrective steps to ensure adherence to monetary policy directives.”
Strong Momentum Effect: “Strong momentum” refers to the continued strength and resilience in economic activity, especially after a revival or policy support. The Reserve Bank of India (RBI) uses this term to indicate that various sectors of the economy are growing steadily, and the growth trend is likely to persist.
Monetary Policy Stance:
Policy Stance
Objective
Impact on Interest Rates
Effect on Economy
When is it Used?
Hawkish
To control inflation by discouraging excessive borrowing and spending
Increase in interest rates
Reduces credit demand and spending → Slows down economy → Helps reduce inflation
When inflation is high and price stability is priority
Dovish
To stimulate economic growth and boost demand
Decrease in interest rates
Encourages borrowing and spending → Boosts demand and investment → Leads to economic growth
When growth is weak and inflation is low
Neutral
To stay flexible and observe data before taking action
Rates can go up, down or remain same
Keeps options open → RBI reacts based on inflation-growth data
When economy is balanced and inflation is moderate
Accommodative
To boost economic activity by injecting more money into the system
When economy is in slowdown but inflation is not a threat
Practice Question:
Q: With reference to Indian economy, consider the following. 1. Bank rate 2. Open market operations 3. Fine Tuning Operations 4. Consumer Credit Regulation Which of the above is/are Qualitative and Quantitative component/ components of Monetary Policy? A) 1 only B) 2, 3 and 4 only C) 1 and 2 only D) 1, 2,3 and 4
Context: Central Electricity Regulatory Commission’s (CERC) proposal to implement market coupling in the Day-Ahead Market (DAM) segment of India’s power exchanges from January 2026.
For UPSC CSE, particularly for General Studies (GS) Paper 3 (Energy), a comprehensive analysis of this issue requires covering multiple dimensions, from basic concepts to advanced policy implications, tailored to the UPSC syllabus.
Also, UPSC has asked basic terms related to economy in prelims examination: (2018)
Which one of the following best describes the term “Merchant Discount Rate” sometimes seen in news?
A The incentive given by a bank to a merchant for accepting payments through debit cards pertaining to that bank.
B The amount paid back by banks to their customers when they use debit cards for financial transactions for purchasing goods or services.
C The charge to a merchant by a bank for accepting payments from his customers through the bank’s debit cards.
D The incentive given by the Government to merchants for promoting digital payments by their customers through Point of Sale (PoS) machines and debit cards.
What are Power Exchanges?
Power exchanges are platforms where electricity buyers (e.g., distribution companies, industries) and sellers (e.g., power generators) trade electricity contracts for various timeframes. For instance:
Day-Ahead Market (DAM): involves trading electricity for delivery the next day in 15-minute blocks.
Market coupling means the process where the collected Orders from all the Power exchanges are aggregated together and then matched to discover a uniform market clearing price. In this process, the market coupling operator takes the Order books from all the power exchanges, how many ever there might be, and combines these buy and sell Orders to develop one set of prices for the entire country.
Through this process, the transmission allocation can happen after accounting for all power flows netted within each bidding zone thereby leading to the most efficient allocation of transmission.
CERC’s plan involves a round-robin system where IEX, PXIL, and HPX take turns as MCO, with Grid-India as a backup and audit operator.
Economic Implications of Market Coupling (Basic to Intermediate)
The article suggests that these marginal gains do not justify full-scale implementation, especially given IEX’s 99% market share, which already ensures efficient price discovery.
Proposed Benefits:
Uniform Pricing: A single MCP reduces arbitrage opportunities where buyers choose exchanges based on lower prices, potentially lowering spot market prices.
Increased Liquidity: Pooling bids across exchanges could increase matched bids, benefiting distribution companies (DISCOMs) and industrial consumers.
Transmission Efficiency: Coupling optimizes transmission capacity by reducing cross-regional congestion.
Consumer Benefits: Lower spot prices could eventually reduce electricity tariffs for end consumers.
Limited Gains as per Pilot Study:
A shadow pilot by Grid-India showed minimal benefits: a 0.3% increase in social welfare (₹38 crore, theoretical) and a 0.2% increase in cleared volume (52 million units). The uncleared volume was only 0.10% of the unconstrained volume in FY24.
RTM coupling yielded even lower gains (0.01% in welfare and volume).
The article suggests that these marginal gains do not justify full-scale implementation, especially given IEX’s 99% market share, which already ensures efficient price discovery.
also, market coupling requires integrating software, upgrading infrastructure, establishing data-sharing protocols, and agreeing on financial settlements.
Hence the shadow pilot’s marginal gains (0.3% welfare, 0.2% volume) and operational complexities question its necessity, especially given IEX’s dominance.
The Indian Navy received the advanced guided-missile frigate Himgiri built by Garden Reach Shipbuilders and Engineers (GRSE) in Kolkata.
UPSC CSE Relevance:
UPSC CSE in prelims examination has focused on awareness in the fields of IT, space mission, computers, robotics, nano-technology.
Himgiri (Yard 3022):
3rd ship of Nilgiri Class (Project 17A)
a reincarnation of the erstwhile INS Himgiri, a Leander-class frigate, that was decommissioned on 06 May 2005.
The state-of-the-art frigate reflects a quantum leap in naval design, stealth, firepower, automation and survivability.
Indigenously developed – an admirable symbol of Aatmanirbhartain warship building.
Driven by the philosophy of ‘Integrated Construction’, the ship is modular and ergonomic.
The ship is 149 meters long and has a displacement of 6,670 tonnes, making it one of the largest and most sophisticated frigates built by Garden Reach Shipbuilders & Engineers (GRSE).
The weapon suite comprises:
BrahMos supersonic cruise missiles for anti-ship and land-attack roles.
Barak 8 medium range surface-to-air missiles for aerial defense.
76 mm Gun
a combination of 30 mm and 12.7 mm rapid-fire Close-in Weapon Systems.
Fitted with advanced Active Electronically Scanned Array (AESA) radar and Integrated Platform Management System (IPMS).
Accommodation for 225 personnel and provides full aviation facilities for the operation of helicopters.
Project 17A:
This project is a follow-on to the earlier Project 17 (Shivalik-class) frigates, with significant improvements in stealth, firepower, and technology. The project is a key component of India’s “Aatmanirbhar Bharat” (Self-reliant India) initiative, with a high degree of indigenous content.
Project 17A frigates are versatile multi-mission platforms, designed to address current and future challenges in the maritime domain.
Designed by the Warship Design Bureau (WDB) and overseen by the Warship Overseeing Team (Kolkata), P17A frigates reflect a generational leap in indigenous ship design, stealth, survivability, and combat capability.
P17A ships are fitted with an advanced weapon and sensor suitecompared to the P17 (Shivalik) class.
These ships are configured with Combined Diesel or Gas (CODOG) propulsion plants, comprising a diesel engine and gas turbine, that drives a Controllable Pitch Propeller (CPP) on each shaft, and a state-of-the-art Integrated Platform Management System (IPMS).
Indigenous content of 75%
The project involves the construction of seven frigates, with four being built by MDL and three by GRSE. The ships are named after mountain ranges in India, reviving the names of the retired Leander-class frigates.
The first three frigates to be delivered are:
INS Nilgiri: The lead ship of the class, built by MDL. It was commissioned into the Indian Navy.
INS Udaygiri: The second ship, also built by MDL, was delivered to the Indian Navy in July 2025.
INS Himgiri: The third ship of the class and the first to be built by GRSE, was delivered to the Indian Navy in July 2025.
The remaining four ships under the project are:
INS Taragiri: Being built by MDL.
INS Dunagiri: Being built by GRSE.
INS Vindhyagiri: Being built by GRSE.
INS Mahendragiri: The seventh and final ship of the class, being built by MDL.
Project 17- Shivalik class:
INS Shivalik (F47): The lead ship of the class, commissioned in 2010.
INS Satpura (F48): Commissioned in 2011.
INS Sahyadri (F49): Commissioned in 2012.
Differences between a frigate and a destroyer warship:
Feature
Frigate
Destroyer
Role
Primarily focused on escorting other vessels and performing anti-submarine warfare (ASW). They also handle patrol duties and provide air defense for a limited area.
Designed to escort larger vessels and engage in direct combat with enemy ships. They are often part of a carrier battle group and are more offensively oriented.
Size & Displacement
Generally smaller and lighter. A modern frigate typically displaces between 1,500 and 6,000 tons.
Larger and heavier than frigates, with displacements ranging from around 3,500 to over 10,000 tons.
Speed
Often designed for speed and maneuverability to fulfill their escort and patrol duties.
While still fast, their larger size can sometimes make them slightly less agile than frigates.
Armament
Equipped with a variety of weapons, including surface-to-air missiles (SAMs), anti-submarine warfare (ASW) torpedoes, and guns.
Generally more heavily armed than frigates, with a greater number of vertical launch system (VLS) cells for missiles, making them capable of broader air and missile defense.
HOPE Station in Ladakh begins research to simulate life on Moon, Mars.
UPSC CSE Relevance:
UPSC CSE in prelims examination has focused on awareness in the fields of IT, space mission, computers, robotics, nano-technology.
UPSC Prelims PYQ 2020:
Q: “The experiment will employ a trio of spacecraft flying in formation in the shape of an equilateral triangle that has sides one million kilometres long, with lasers shining between the craft.” The experiment in question refers to A) Voyager-2 B) New Horizons C) LISA Pathfinder D) Evolved LISA
UPSC Mains PYQ 2022:
Q: Launched on 25th December, 2021, James Webb Space Telescope has been much in the news since then. What are its unique features which make it superior to its predecessor Space Telescopes? What are the key goals of this mission? What potential benefits it hold for the human race?
Project launched by:
Protoplanet, a Bengaluru-based company involved in space science popularisation.
ISRO funded a portion of the station’s development as well as advised on the criteria for selecting candidates.
Why Ladakh?
Ladakh’s unique characteristics, including its high altitude, arid climate, and terrain, closely resemble the conditions found on Mars and the Moon.
This makes it an ideal location for testing various aspects of space exploration, including habitat design, resource management, and astronaut training.
Objective:
To prepare for possible manned space missions to the Moon and potentially Mars.
PM Narendra Modi has stated that he expects India will have its own BharatiyaAntariksh Stationby 2035 and a manned Moon mission by 2040.
The United States’ National Aeronautical and Space Administration (NASA) has indicated the possibility of a manned mission to Mars “in the 2030s”
It will be instrumental in developing robust protocols and technologies for sustained human presence beyond Earth.
Location – Tso Kar, Ladakh:
Research:
Selected ‘crew’, beginning August 1, will take turns inhabiting the station as part of a 10-day‘isolation mission.’
The crew will undergo extensive physiological, epigenetics and psychological studies to assess human adaptability and resilience in conditions simulating deep space environments.
Other similar stations:
Mars Desert Station (United States)
Flashline Mars Arctic Research Station in Canada
BIOS-3 in Russia
Note:
HOPE is different from the analogous space mission launched by ISRO in Leh in November 2024.
India’s first analog space mission kicked off in Leh last year with the collaborative effort by Human Spaceflight Centre, ISRO, AAKA Space Studio, University of Ladakh, IIT Bombay, and supported by Ladakh Autonomous Hill Development Council.
This analogous mission will simulate life in an interplanetary habitat to tackle the challenges of a base station beyond Earth.
