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Most Favoured Nation (MFN) and Safe Harbour and its significance for the UPSC Exam? Why are topics like freebies , Total Fertility Rate (TFR) important for both preliminary and main exams? Discover more insights in the UPSC Exam Notes for May 14, 2025 |
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Critical Topics and Their Significance for the UPSC CSE Examination on May 14, 2025
Daily Insights and Initiatives for UPSC Exam Notes: Comprehensive explanations and high-quality material provided regularly for students
For Preliminary Examination: Current events of national and international Significance
For Mains Examination: GS II - Policies and Politics
Context:
Global pharma companies could ramp up pressure on India to raise the prices of drugs in India and other developing markets, as US President Donald Trump’s new executive order is set to force companies to align US drug costs with cheapest ones abroad.
Read about:
What does Most Favoured Nation mean?
What is the Priority Watch List watch list?
Key takeaways:
- India’s generic pharmaceutical sector, known for supplying affordable medication not just domestically but also to countries like the United States and the United Kingdom, has long drawn criticism from major pharmaceutical firms in developed economies.
- These companies claim that India’s relatively lenient intellectual property (IP) laws put them at a disadvantage in the global market. This tension was highlighted when the U.S. added India’s patent framework to its "Priority Watch List" for intellectual property concerns—an action that holds considerable implications for drug production. This development coincided with an executive order issued by then-President Donald Trump.
- Ajay Srivastava, who leads the Global Trade and Research Initiative (GTRI), commented that Trump's move to implement a Most Favoured Nation (MFN) pricing policy should serve as a serious alert for India. He noted that pharmaceutical firms facing tightening price regulations in Western countries may seek to make up for lost revenue by pushing for price hikes in countries like India.
- India’s pharmaceutical legislation is aligned with the World Trade Organization’s Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). Nonetheless, India has consistently resisted adopting enhanced IP provisions, often known as "TRIPS-plus" standards.
- These include stricter patent enforcement mechanisms—such as data exclusivity, automatic extensions of patent duration, patent linkage, broader eligibility for patenting, and evergreening tactics—that are typically promoted by developed countries through bilateral Free Trade Agreements (FTAs).
- In a statement on social media, Trump announced the launch of a Most Favoured Nation pricing policy, which would require the United States to pay the same price for prescription drugs as the country offering the lowest rate globally.
- He claimed that this would immediately slash drug prices in the U.S. by 30% to 80%, and predicted that pharmaceutical prices would rise globally in response, ultimately creating what he termed a "fair" pricing model for the American public.
- Trump further questioned why identical drugs—produced by the same manufacturers in the same facilities—are often sold at significantly higher prices in the U.S. compared to other countries, sometimes five to ten times more expensive.
- According to international trade analysts, while this policy might offer short-term relief for American consumers, it is expected to disrupt global pricing structures. Major pharmaceutical companies are likely to intensify their efforts to raise prices in low-cost markets like India, since these countries would influence the pricing benchmarks in the highly profitable American market
Follow Up Question
1.Which of the following are the reasons for the occurrence of multi-drug resistance in microbial pathogens in India? (2019)
1. Genetic predisposition of some people
2. Taking incorrect doses of antibiotics to cure diseases
3. Using antibiotics in livestock farming
4. Multiple chronic diseases in some people
Select the correct answer using the code given below.
(a) 1 and 2
(b) 2 and 3 only
(c) 1, 3 and 4
(d) 2, 3 and 4
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Answer (b)
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In Taxation (India and globally)
In the context of transfer pricing in taxation (which deals with pricing of transactions between related business entities), Safe Harbour Rules (SHR) are guidelines set by tax authorities that prescribe a fixed margin or pricing range for certain transactions. If a taxpayer follows these guidelines, the tax authorities will not question or audit the transfer pricing arrangements.
In India, the Central Board of Direct Taxes (CBDT) introduced Safe Harbour Rules to provide certainty, reduce litigation, and simplify compliance for multinational companies and businesses involved in cross-border transactions.
Example:
If an Indian company provides software development services to its foreign parent company and charges a margin of, say, 18% (as per the prescribed safe harbour limit), the tax department will not dispute the pricing, provided other conditions are met
In Data Protection (e.g., U.S.-EU Safe Harbour Agreement)
In international data privacy law, a Safe Harbour agreement allowed companies to transfer personal data between the EU and the U.S. while complying with EU data protection standards. However, this particular agreement (the EU-U.S. Safe Harbour) was invalidated in 2015 and replaced by the Privacy Shield Framework, which was also later struck down
Follow Up Question
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Answer (C)
The Global Cybersecurity Index (GCI) 2020 was released by the International Telecommunication Union (ITU), a specialized agency of the United Nations. The ITU assesses countries' commitment to cybersecurity across five key pillars: Legal Measures, Technical Measures, Organizational Measures, Capacity Development, and Cooperation. The 2020 edition of the GCI aimed to promote action toward secure digital ecosystems required for recovery and growth . India ranked 10th globally in the 2020 GCI, marking a significant improvement from its previous position of 47th in 2018 |
Understanding Clientelism in Indian Politics
- Clientelism refers to a form of reciprocal exchange where politicians provide voters with specific material benefits—such as cash, goods, or services—in return for electoral support.
- This mutual relationship, central to studies in political science, anthropology, and sociology, relies heavily on continued support, such as votes or campaign involvement. To ensure voters reciprocate, politicians attempt to track voter compliance, often using extensive grassroots networks of party workers or local brokers.
- A defining trait of clientelism, distinguishing it from general welfare distribution, is the potential threat of penalty for those who fail to reciprocate.
- Typically, these patron-client relationships are marked by a power imbalance, where politicians hold significant control over resources while voters are often socioeconomically disadvantaged.
- Though democratic reforms in India have weakened caste-based hierarchies, the wealth disparity between political leaders and average citizens has widened significantly. This creates a theoretical risk where affluent politicians might penalize poor voters for disloyalty. However, such retaliation is rarely observed in practice.
- This is largely due to India’s robust secret ballot system, which protects voter anonymity, limiting the effectiveness of political monitoring. Consequently, many voters accept benefits from various parties without feeling bound to vote for any particular one.
- Additionally, the erosion of dense networks of political operatives—unlike the tightly organized systems found in parts of Latin America—further reduces politicians’ ability to monitor voter behavior effectively. India’s vast electorate and large constituencies also make such surveillance impractical.
- The deepening democratic engagement among Indian voters has made it increasingly difficult to maintain traditional clientelist practices. Voters are no longer passive participants, and politicians lack the means to enforce compliance. Thus, clientelism in India operates in a more atypical form, where the exchange lacks strict enforcement, and voters retain considerable autonomy.
Patronage and the Role of Freebies
- Besides clientelism, politicians also maintain long-term patronage networks to secure electoral loyalty. These involve the distribution of enduring benefits such as employment, loans, or subsidies. Unlike the short-term exchanges that occur near elections (clientelism), patronage implies a more sustained relationship between leaders and constituents.
- Freebies, on the other hand, refer to goods or services distributed without specific targeting or expectations of electoral return. These benefits, often categorized by age, gender, or other broad demographics, include programs like free bus rides for women or bicycles for schoolgirls.
- Their inclusive distribution criteria distinguish them from clientelism. While they may be introduced with the hope of gaining electoral support, they lack direct reciprocity or coercion.
- The increasing use of digital tools like Direct Benefit Transfers (DBT) has reduced the role of intermediaries such as local party workers in distributing welfare benefits. As a result, these programs function independently of party machinery and lessen the chances of misuse for electoral gain.
- Political theorist James Manor has referred to such universal schemes as post-clientelistic, highlighting their potential to bring about societal transformation, especially for marginalized groups like women.
- Empirical studies suggest that such initiatives can enhance educational enrollment and economic participation among women, though comprehensive long-term data is still being gathered. Given their broader reach and lack of coercive enforcement, labeling these programs as undemocratic or manipulative is an oversimplification.
The Need for Greater Focus on Informal Clientelism
- India's competitive electoral landscape has seen politicians invest heavily in election campaigns, often using private funds for publicity, rallies, and distribution of material benefits. These informal, clientelist transactions, unlike officially declared freebies, are harder to trace or regulate.
- While formal welfare schemes are subject to audits and potential reform, informal distributions remain under-examined and unregulated. Equating the two obscures the real concern: clientelistic practices that favor a select group of voters and erode democratic principles.
- Criticizing inclusive, universal welfare programs while ignoring the exclusionary and opaque nature of clientelistic transactions misses the more pressing threat to democratic integrity
1.In India’s electoral democracy, the distinction between clientelism and welfare-based distribution is often blurred, leading to debates on the ethics and effectiveness of political freebies.”
Critically examine the role of clientelism and patronage networks in Indian politics. How do universal welfare schemes differ from clientelist practices? Evaluate their implications on democratic accountability and electoral behaviour. (250 words)
Total Fertility Rate in India remains at 2.0; Bihar records highest count, Bengal lowest
For Preliminary Examination: Total Fertility Rate, Replacement Fertility Rate
For Mains Examination: GS III - Economy
Context:
The Total Fertility Rate (TFR), the average number of children born to women over their lifetime, in the country has remained at 2.0 in 2021, the same as in 2020, shows the Sample Registration System (SRS) report for 2021 released by the Registrar-General of India (RGI)

Read about:
Total Fertility Rate (TFR)
Replacement fertility rate
Key takeaways:
- According to the 2021 Sample Registration System (SRS) report by the Registrar-General of India, the country's Total Fertility Rate (TFR)—which indicates the average number of children a woman has over her lifetime—stood at 2.0, the same as the previous year. Bihar recorded the highest TFR at 3.0, while Delhi and West Bengal reported the lowest at 1.4.
- The data highlighted a steady reduction in the proportion of children aged 0–14, from 41.2% in 1971 to 24.8% in 2021. In contrast, the share of the working-age population (15–59 years) rose from 53.4% to 66.2% over the same period.
- Meanwhile, the proportion of senior citizens (aged 65 and above) increased from 5.3% to 5.9%, and the 60-plus demographic grew from 6% to 9%.
- During the 2024 interim Budget, Finance Minister Nirmala Sitharaman proposed forming a high-level committee to address issues linked to population trends and demographic shifts. Despite the suggestion of rapid population growth, the SRS figures point to a more gradual demographic transition. However, a fuller understanding will only emerge after the delayed Census, last conducted in 2011, is completed.
- Since the Census is usually carried out every decade, the SRS remains the most comprehensive demographic survey, offering annual national and state-level estimates of fertility and mortality. The 2021 SRS covered 8,842 sample units across India, encompassing approximately 84 lakh people.
- In terms of ageing, Kerala had the highest share of elderly (60 and above) at 14.4%, followed by Tamil Nadu (12.9%) and Himachal Pradesh (12.3%). On the lower end were Bihar (6.9%), Assam (7%), and Delhi (7.1%).
- The average age at marriage for women has also risen, moving from 19.3 years in 1990 to 22.5 years in 2021.
- Significantly, India has now achieved the replacement level fertility rate of 2.1 at the national level. Several states have gone below this benchmark: Delhi and West Bengal (1.4), Tamil Nadu, Andhra Pradesh, Jammu & Kashmir, Kerala, Maharashtra, and Punjab (1.5), Himachal Pradesh and Telangana (1.6), Karnataka (1.6), Odisha and Uttarakhand (1.8), Gujarat and Haryana (2.0), and Assam (2.1)
Follow Up Question
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Answer (C)
The Total Fertility Rate (TFR) is the average number of children a woman would have over her lifetime if she were to experience the exact current age-specific fertility rates throughout her reproductive years (typically ages 15 to 49), and she survives through those years
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For Preliminary Examination: Current events of national and international Significance
For Mains Examination: GS II - International Organisations
Context:
A day before the International Monetary Fund (IMF) is set to review the financing facilities extended to Pakistan, India’s Foreign Secretary Vikram Misri on Thursday said the Fund’s Board should look “deep within” and take into account the facts before generously bailing out the country
Read about:
What is IMF bailout?.
Instances of IMF bailout
Key takeaways:
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The International Monetary Fund (IMF) supports countries facing economic crises by offering financial assistance. This support helps nations implement necessary policy adjustments to restore stability and foster growth. In addition, the IMF offers precautionary funding to guard against potential crises. The institution continually updates its lending instruments to better suit the evolving needs of member countries.
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In contrast to development banks, the IMF does not finance individual development projects. Its focus is on aiding countries in crisis by providing temporary financial relief while they enact economic reforms. The IMF also extends precautionary lines of credit to prevent potential financial turmoil. Its range of lending programs is regularly adapted to stay aligned with changing global economic conditions.
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Economic crises can arise from a complex mix of domestic and international factors. Internally, poor fiscal and monetary decisions can lead to unsustainable deficits and mounting public debt. An inflexible or misaligned exchange rate can reduce a country’s competitiveness and drain its foreign reserves. Weak financial institutions may also contribute to economic volatility. Political instability and fragile governance systems are further domestic contributors. On the external front, countries—especially low-income ones—may be affected by events such as natural disasters or dramatic changes in commodity prices. In a globalized economy, abrupt shifts in investor sentiment can also cause volatile capital flows, impacting even well-managed economies.
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Since joining the IMF in 1950, Pakistan has entered into 25 agreements with the institution. As of March 31, 2025, the IMF’s outstanding loans to Pakistan amounted to 6.23 billion Special Drawing Rights (SDRs).
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Currently, Pakistan is receiving financial support from a $7 billion IMF aid package approved in September 2024. This package is structured under a 37-month Extended Fund Facility, which includes six performance reviews. The disbursement of the next installment, approximately $1 billion, is dependent on the successful completion of the upcoming review.
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Parameswaran Iyer, who serves as the Executive Director at the World Bank, has been temporarily assigned as India’s representative on the IMF Board. He will attend the significant Board meeting scheduled for May 9. This appointment follows the early termination of Krishnamurthy V. Subramanian’s term as India’s Executive Director at the IMF, which ended six months prior to its original conclusion.
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Amid escalating tensions with Pakistan, the Indian government plans to engage with various multilateral development banks to discourage further lending and financial assistance to Pakistan, according to a senior official
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Answer (B)
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India-UK Trade Deal and the Rebalancing Clause
- An important provision known as the "rebalancing mechanism" has been included in the general exceptions section of the draft trade agreement between India and the United Kingdom.
- This clause gives India the right to seek compensation if it incurs losses and protects it from any potential legal challenges that the UK might bring before the World Trade Organization (WTO), as per a government source.
- In international trade pacts such as the General Agreement on Tariffs and Trade (GATT), the general exceptions chapter allows countries to implement measures that might otherwise breach trade norms—so long as they can be justified for reasons like safeguarding public health or the environment, in accordance with WTO rules
Carbon Pricing and the Carbon Border Adjustment Mechanism (CBAM)
- According to the World Bank, a carbon tax assigns a direct price to carbon emissions, typically by taxing fossil fuels based on their carbon content. This is one form of carbon pricing, with the other being Emissions Trading Systems (ETS).
- The European Union introduced a variant of carbon pricing—the Carbon Border Adjustment Mechanism (CBAM)—in 2021. It applies an emissions-based tax on imported goods. For example, if imported steel is produced with higher emissions than EU standards, it attracts a carbon levy.
- The aim of CBAM is to uphold strict environmental regulations within the EU without making European industries less competitive. It also discourages industries from relocating production to countries with laxer emission standards, a phenomenon known as "carbon leakage." Through this, the EU hopes to contribute meaningfully to reducing global carbon emissions.
- However, CBAM is seen as detrimental to developing economies like India and China. These nations argue that the mechanism disregards the principle of "Common But Differentiated Responsibilities" (CBDR), which acknowledges that developed and developing countries have different capacities and historical responsibilities in tackling climate change.
- CBAM’s implementation begins in January 2026, with a transition phase that started on October 1, 2023, requiring exporters to report emissions data to EU regulators. This is crucial for India, as the EU accounts for more than 15% of India’s total merchandise exports, which stood at $75 billion in 2022–23.
- India’s Finance Minister Nirmala Sitharaman and Commerce Minister Piyush Goyal have publicly criticized CBAM, calling it an unjust measure and a violation of the CBDR principle embedded in international climate negotiations
India’s Response: The Carbon Credit Trading Scheme (CCTS)
To address emissions in a manner tailored to its development needs, India has introduced the Carbon Credit Trading Scheme (CCTS). Unlike the emission trading systems in developed countries which focus on absolute reductions, India’s approach emphasizes emission intensity reductions suited to a growing economy.
Launched in 2023, the CCTS seeks to establish a market for trading carbon credits, aimed at lowering emissions in high-energy sectors and aiding India’s commitment to the Paris Agreement of 2015. Although the scheme is not fully operational yet, the Ministry of Environment, Forest and Climate Change released the Draft Greenhouse Gases Emissions Intensity (GEI) Target Rules, 2025, on April 16, to build a compliance framework for the CCTS.
As clarified in Parliament in December 2023, the CCTS operates under two mechanisms:
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A compliance mechanism: Obligated entities that meet required emission intensity targets receive Carbon Credit Certificates.
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An offset mechanism: Entities not bound by obligations can register emission-reduction or removal projects to earn similar certificates
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Answer (A)
The Social Cost of Carbon (SCC) is an estimate, usually in monetary terms, of the economic damages associated with emitting one additional tonne of carbon dioxide into the atmosphere in a given year. It includes effects such as:
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Pegasus, also referred to as the Q Suite, is a surveillance software developed by former members of Israeli intelligence and is marketed by NSO Group, also known as Q Cyber Technologies, as a cutting-edge cyber intelligence tool. It enables law enforcement and intelligence agencies to covertly and remotely extract information from nearly all mobile devices.
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Prior to 2018, NSO Group’s customers mainly used deceptive messages sent via SMS or WhatsApp to trick users into clicking malicious links. This method, called Enhanced Social Engineering Message (ESEM) in Pegasus’ marketing materials, directed users to a server that would detect the phone’s operating system and install the appropriate exploit for remote access.
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In October 2019, Amnesty International released a report highlighting the use of network injections, a method allowing Pegasus to be installed on devices without any user interaction—a zero-click attack. One technique involves sending a covert push message that triggers spyware installation silently, with the user remaining completely unaware and unable to stop the process.
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Pegasus has shown the ability to infect almost any mobile device, including Apple’s iPhones, by exploiting the iMessage app and the Apple Push Notification Service (APNs). The spyware is capable of mimicking legitimate apps and transmitting itself through Apple’s servers via push notifications.
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Regarding the Justice R.V. Raveendran committee, which investigated claims of Pegasus being used for surveillance on journalists, activists, and politicians, Justice Surya Kant emphasized that any report implicating national security would remain confidential.
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He added that individuals concerned about being surveilled may be informed personally but insisted the findings cannot be made public for general debate, as this could compromise sensitive national interests. Justice Kant made these remarks while leading a bench with Justice N. Kotiswar Singh, hearing multiple petitions filed in response to the Pegasus revelations from 2021.
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Senior Advocate Dinesh Dwivedi, representing some petitioners, argued that even if surveillance wasn’t proven in a specific case, the key concern remains whether the government possesses and uses Pegasus.
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To this, Justice Kant responded that merely possessing such spyware isn't illegal; the core issue lies in how and against whom it is deployed. He stated, "It’s not a simple matter—you can’t jeopardize national security."
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Senior Advocate Kapil Sibal, also representing petitioners, referenced a US District Court ruling on NSO Group’s alleged hacking of WhatsApp accounts using Pegasus. Sibal claimed that the court identified India as one of the affected nations, citing WhatsApp’s own statements.
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He also mentioned the formation of the R.V. Raveendran Committee by the Supreme Court in October 2021 to investigate potential violations of citizens’ fundamental rights due to alleged widespread surveillance.
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In its August 25, 2022 order, the Supreme Court acknowledged that while the committee discovered malware in five phones, there was no conclusive proof that Pegasus was involved. The court further noted that the central government had not cooperated with the investigation
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Answer (4)
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- The Indus Waters Treaty (IWT) cannot be changed by one country acting alone. Article XII clearly states that ending the treaty requires a new agreement, formally ratified by both India and Pakistan.
- In a recent communication to Pakistan, India used the phrase “hold in abeyance,” a term not recognized under international law or referenced in the 1969 Vienna Convention on the Law of Treaties (VCLT), which serves as the primary legal framework for international treaties.
- According to Dr. Prabhash Ranjan, a professor at Jindal Global Law School, the VCLT uses the term “suspension,” which allows for temporarily halting the implementation of a treaty in whole or in part.
- Suspension differs from termination. Dr. Ranjan suggested that India’s use of “abeyance” likely referred to a temporary suspension rather than a complete withdrawal from the IWT.
- Article 62 of the VCLT provides that a treaty may be set aside if there is a “fundamental change of circumstances” compared to when it was originally signed. Though India has not joined the VCLT and Pakistan has signed but not ratified it, the International Court of Justice (ICJ), in the Fisheries Jurisdiction cases, recognized Article 62 as part of customary international law—meaning it is applicable even without formal ratification.
- India seems to be referencing this legal principle by claiming in its letter that significant changes in circumstances justify a reassessment of its treaty obligations. However, Dr. Ranjan noted that the ICJ has historically required a high bar for such claims.
- In the 1997 Gabcíkovo-Nagymaros case between Hungary and Slovakia, Hungary attempted to justify treaty termination by citing political shifts, economic changes, and environmental concerns.
- The ICJ dismissed these arguments, concluding that the changes did not directly impact the treaty’s central purpose of cooperative energy generation.
Implications for Pakistan
- Pakistan is heavily reliant on the Indus basin, with more than 80% of its agriculture and about one-third of its hydropower output depending on its waters.
- Despite this, experts argue that India currently lacks the infrastructure—such as large-scale water storage and widespread canal networks—needed to significantly restrict the flow of water from the western rivers.
- India’s hydropower facilities are mostly run-of-the-river types, which do not support major water storage.
- Nonetheless, the primary risk for Pakistan lies in the unpredictability of water flows, which could have serious consequences for its largely agriculture-based economy
1.With reference to the Indus river system, of the following four rivers, three of them pour into one of them which joins the Indus directly. Among the following, which one is such a river that joins the Indus direct? (2021)
(a) Chenab
(b) Jhelum
(c) Ravi
(d) Sutlej
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Answer (d)
In the Indus River system:
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| Subject | Topic | Description |
| Polity | Citizenship | Citizenship Amendment Act |
| Polity | Special Provision for Scheduled Caste(SC) and Scheduled Tribe (ST) | Special Provision for Scheduled Caste(SC) and Scheduled Tribe (ST) |
| Economy | International Monetary Fund (IMF) | International Monetary Fund (IMF) |
| Environment | Evolution of Life | Evolution of Life |
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