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Critical Topics and Their Significance for the UPSC CSE Examination on December 24, 2024
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India’s reliance on China for critical minerals
For Preliminary Examination: Rare Earth elements, Critical Minerals
For Mains Examination: GS II - Governance
Context:
The Ministry of Mines in 2023 identified 30 critical minerals deemed essential for the nation’s economic development and national security. While the report highlighted India’s complete import dependency for 10 critical minerals, it did not fully address a more pressing concern — the extent and nature of dependency on China.
Read about:
Rare Earth Elements
Critical Minerals
Key takeaways:
Is China a Dominant Player?
- China's dominance in critical minerals arises from its vast resource base and strategic investments across the supply chain. As the world’s leading mining nation, China has identified 173 types of minerals, including 13 energy minerals, 59 metallic minerals, and 95 non-metallic minerals.
- In the past year, reserves of key minerals like copper, lead, zinc, nickel, cobalt, lithium, gallium, germanium, and crystalline graphite have grown significantly, backed by $19.4 billion in exploration investments.
- These efforts uncovered 132 new mineral deposits, including 34 major ones. Beyond raw materials, China controls significant portions of the global processing and refining market, handling 87% of rare earth processing, 58% of lithium refining, and 68% of silicon processing.
- Additionally, strategic overseas mining investments and midstream refining capabilities have heightened supply chain dependencies for nations such as India, the U.S., and EU members.
What About China’s Export Controls?
- China employs a calculated strategy in controlling critical mineral exports, targeting materials crucial to Western nations, particularly for semiconductors, batteries, and advanced technologies.
- However, Beijing carefully navigates two constraints: avoiding controls on minerals heavily reliant on Western raw materials and preventing disruptions to its domestic industries or export-oriented sectors.
- This approach was evident in China's 2010 rare earth embargo on Japan, recent restrictions on antimony, gallium, and germanium, and its December 2023 ban on rare earth extraction and processing technologies.
Is India Dependent on China?
India's dependence on Chinese supplies for critical minerals is stark, as import data from 2019 to 2024 shows significant reliance on six minerals with over 40% dependency: bismuth (85.6%), lithium (82%), silicon (76%), titanium (50.6%), tellurium (48.8%), and graphite (42.4%).
- Bismuth, used in pharmaceuticals and chemicals, has limited alternatives, with China accounting for 80% of global refinery production.
- Lithium, essential for EV batteries and energy storage, faces processing challenges despite alternative raw material sources, as China manages 58% of global refining.
- Silicon, critical for semiconductors and solar panels, requires advanced processing technologies possessed by only a few countries.
- Titanium, used in aerospace and defense, has diverse sources but entails high switching costs.
- Tellurium, vital for solar power and thermoelectric devices, is largely controlled by China, producing 60% of the global supply.
- Graphite, indispensable for EV batteries and steel production, faces shortages as China dominates 67.2% of global output, including battery-grade material.
Why Does India Rely on Imports?
- Despite having substantial mineral resources, India’s dependency on imports arises from structural challenges in its mining and processing ecosystem. Many critical minerals are located deep underground, requiring high-risk investments in exploration and mining technology, which are hindered by insufficient incentives and policy support.
- Additionally, India lacks advanced processing capabilities. For instance, the recently discovered lithium deposits in Jammu and Kashmir, estimated at 5.9 million tonnes, cannot currently be utilized as India does not possess the technology to extract lithium from clay deposits
Follow Up Question
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Answer (C)
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Can India escape middle-income trap?
For Preliminary Examination: Current events of nattional and international importance
For Mains Examination: GS III - Indian Economy
Context:
The World Development Report 2024 — authored by the World Bank — calls attention to the phenomenon of the “middle-income” trap, or the slowing down of growth rates as incomes increase. The World Bank estimates a stagnation of income per capita when economies reach a level of per capita incomes 11% of that of the U.S., hindering their journey to high-income status. Over the last 34 years, only 34 middle-income economies — defined as economies with per capita incomes between $1,136 and $13,845 — have transitioned to higher income levels.
Read about:
What is Middle-income Trap?
Challenges facing by India
Key takeaways:
The World Development Report 2024, produced by the World Bank, highlights the "middle-income trap," where growth rates decline as income levels rise. According to the World Bank, countries may experience stagnation in per capita income once they reach 11% of U.S. per capita income, obstructing their path to high-income status. Over the past 34 years, only 34 middle-income nations—defined as those with per capita incomes between $1,136 and $13,845—have successfully advanced to higher income levels.
The report outlines the necessary policies and strategies to escape this trap, drawing lessons from countries that successfully transitioned. It emphasizes the "3i" approach: investment, infusion of global technologies, and fostering innovation. Economies need to invest, embrace new technologies, and cultivate an environment that encourages domestic innovation. This is a challenging endeavor that demands agile and responsive state policies. In the current economic landscape, India faces significant obstacles to overcome the middle-income trap.
Role of the State
- Most nations that successfully avoided the trap were part of the European Union, which facilitated growth through the mobility of capital and labor among its members. However, many countries lack such institutions; while they liberalize capital inflows, they often impose restrictions on labor movement. A notable exception is South Korea, which managed to escape the trap.
- The South Korean government played an active role in guiding the private sector and promoting an export-driven growth model. Successful companies were granted access to new technologies and supportive measures, while underperforming firms were allowed to fail. This approach was not a pure free market but involved significant state intervention to achieve developmental goals, maintaining oversight of local elites and ensuring alignment with the state’s economic strategy.
- Chile is another country that escaped the middle-income trap, thanks to state intervention that supported its natural resource sectors, such as the successful salmon industry, which benefited from targeted government actions.
- The lessons from South Korea's government strategy are crucial for India today. The state must maintain neutrality among private enterprises and allow underperforming firms to fail. Support from the government should be performance-based, rather than reliant on personal connections to power.
- The presence of influential business groups can foster growth if they prioritize investment, adopt new technologies, and drive innovation. South Korean conglomerates, or chaebols, are now leaders in innovation.
Challenges Ahead
- South Korea's success was largely built on manufacturing exports, a strategy that is less viable today. Global export growth has slowed, particularly due to decreasing demand from major economies after recent economic shocks. Many countries are turning towards protectionism, complicating access to foreign markets for nations like India.
- Additionally, several countries face what economist Dani Rodrik describes as "premature deindustrialization," where the manufacturing sector's share of income declines at much lower GDP levels compared to earlier economies. Manufacturing is no longer the primary growth engine for developing nations, and it remains uncertain whether the service sector can effectively fill this gap.
Specific Challenges for India
- In India, the influence of billionaires has grown, with perceptions that they are closely aligned with the government, which appears unable or unwilling to stimulate high levels of domestic investment. The manufacturing sector has stagnated, and post-pandemic employment has shifted back to agriculture and low-productivity jobs, reversing previous structural transformations.
- Despite government claims of approximately 7% real GDP growth in recent years, this is not reflected in the wage growth for workers. Data from the Periodic Labour Force Survey (PLFS) indicates that nominal wages for regular workers grew only about 5%, and for casual workers, roughly 7%, during April to June 2023-24.
- With an inflation rate around 5%, this translates to minimal real wage growth. An economy cannot escape the middle-income trap if workers do not benefit from economic growth, as weak consumption demand can hinder overall economic progress.
- Moreover, the issue of democracy is significant. South Korea's export-led growth was managed by a military government until the 1980s, which often suppressed labor unions to facilitate capital accumulation.
- Similarly, Chile experienced a military coup that removed the democratically elected government of Salvador Allende, installing General Augusto Pinochet as leader. It is essential to avoid drawing incorrect conclusions from these examples, such as believing that sacrificing democracy is a trade-off for increased growth.
- The challenge for policymakers is to encourage state intervention to foster growth while preserving the integrity of democratic principles
Follow Up Question
1.Which of the following statements about the middle-income trap is/are correct?
- The middle-income trap refers to a situation where a country experiences stagnant growth after reaching a certain level of income.
- Countries that successfully transition out of the middle-income trap typically have high levels of state intervention and support for strategic sectors.
- Only countries with abundant natural resources can escape the middle-income trap.
Select the correct answer using the code given below:
A) 1 and 2 only
B) 2 and 3 only
C) 1 and 3 only
D) 1, 2, and 3
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Answer (A)
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After a strong start to goods exports in the first quarter of 2024-25, momentum has slowed down. Export values dropped by 1.5% in July, hitting an eight-month low, and the decline worsened to 9.3% in August. This decline coincided with a record-high import bill of $64.4 billion in August, resulting in a merchandise trade deficit of $29.7 billion, the second largest after the $29.9 billion gap in October 2023.
Reasons for the widening trade deficit:
- Although exports have declined over the past two months, imports have not followed suit, increasing by 7.5% in July and 3.3% in August. This pushed the trade deficit to a nine-month high of $23.5 billion in July, widening further by $6.2 billion in August.
- While several of India’s top export sectors, such as petroleum and gems and jewellery, experienced significant drops (oil exports fell by 22.2% in July and 37.6% in August, and jewellery exports shrank by over 20% in both months), imports continued to rise.
- In August, slower growth in sectors like pharmaceuticals and electronics was observed. Additionally, with the slowdown in China’s economy, exports of certain goods such as stone, cement, and iron ore declined.
- However, as oil prices fell by $6 per barrel in August, India’s oil import bill dropped by a third to $11 billion, bringing the petroleum deficit to a three-year low, as noted by QuantEco Research economists.
- “The widening trade deficit was mainly driven by gems and jewellery, alongside smaller contributions from miscellaneous products and electronics,” the economists noted.
- While exports of gems and jewellery fell below $2 billion, India’s gold imports more than doubled in August to an unprecedented $10.1 billion.
- This contrasts with a 10.7% drop in gold imports in July and the $3 billion to $3.4 billion range seen since April. Trade officials attributed the surge to a reduction in the gold import duty from 15% to 6% in the Budget, rising gold prices, and jewellers stocking up for the festive season. Economists predict that the full effect of duty cuts on gold and other items will continue to impact the import bill in the coming months.
Could a wider trade deficit pose risks?
- “For a developing economy with high growth, the trade deficit should not be concerning as long as there are no foreign exchange issues,”
- Foreign capital inflows have remained positive in recent months, and India’s foreign exchange reserves reached a record $675 billion as of August 2, which the Finance Ministry noted is enough to cover 11.6 months of imports.
- Although this coverage may decrease if imports stay above $60 billion, strong services exports, which increased by over 10% from April to August, offer some reassurance.
What about foreign trade in goods?
While global trade is expected to grow faster in 2024 compared to 2023, demand remains weak in most developed markets. In addition to geopolitical tensions, the upcoming U.S. elections and increased tariffs on Chinese goods, coupled with China’s struggling domestic economy, pose challenges for countries like India.
As China's import demand weakens, it may seek to offload products in non-U.S. markets at lower prices. Furthermore, these factors are likely to keep oil prices down, negatively impacting India’s oil exports. Overall, concerns about global demand are increasing, and although India aims to increase goods and services exports to a trillion dollars each by 2030, the path forward will likely be challenging
1.The term "Twin Deficit" in the context of an economy refers to which of the following?
- Fiscal deficit and Revenue deficit
- Fiscal deficit and Current account deficit
- Trade deficit and Revenue deficit
- Trade deficit and Primary deficit
Select the correct answer using the code given below:
(a) 1 only
(b) 2 only
(c) 3 only
(d) 4 only
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Answer (b)
The Twin Deficit refers to a situation where a country is facing both a fiscal deficit and a current account deficit. A fiscal deficit occurs when the government's total expenditures exceed the revenue that it generates, excluding money from borrowings. A current account deficit occurs when a country imports more goods, services, and capital than it exports. Both these deficits together can signify deeper economic issues, such as unsustainable borrowing or low competitiveness in international trade
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A modified UBI policy may be more feasible
For Preliminary Examination: Current events of antional and international importance
For Mains Examination: GS III - Indian Economy
Context:
The idea of a Universal Basic Income (UBI) keeps surfacing from time to time. A recent report by the International Labour Organization talks about how jobs growth has been lagging globally due to automation and Artificial Intelligence, and notes the massive problem of youth unemployment in India. The phenomenon of jobless growth, where productivity rises but job creation lags and contributes to the alarming trend in inequality, has rekindled interest in a UBI as a component of a social safety net across the world.
Read about:
What is Universal Basic Income?
World View on Universal Basic Income
Key takeaways:
- The concept of Universal Basic Income (UBI) resurfaces periodically in discussions. A recent report from the International Labour Organization highlights how job growth is slowing worldwide due to automation and artificial intelligence, with India facing a significant issue of youth unemployment. The trend of jobless growth—where productivity increases but job creation stagnates—has renewed global interest in UBI as part of a broader social safety net to tackle rising inequality.
- In India, UBI gained traction after being recommended in the 2016-17 Economic Survey. Experts debated whether replacing inefficient welfare schemes with direct cash transfers to the poor could be more effective. The development of the JAM (Jan-Dhan, Aadhaar, Mobile) infrastructure also made the idea of direct benefit transfers more practical.
UBI and its variations
- The question arises whether India should adopt a version of UBI to address issues like unemployment and poverty. While feasibility and desirability are both factors in policymaking, critiques often misunderstand UBI's purpose. UBI is primarily a social safety net to help individuals cope with unemployment rather than directly stimulating job creation. As with other policies, it should be assessed based on the specific issues it aims to resolve.
- Even if UBI is deemed desirable, its feasibility is constrained by budgetary limits. A scaled-down version might be more practical. While India has several cash transfer schemes, UBI, by definition, must be universal and not targeted at specific groups.
- Comparisons with other safety net programs, like MGNREGS or the Public Distribution System, highlight the need for clarity in policy objectives—whether the goal is immediate relief or long-term poverty reduction.
Existing income transfer schemes
- India has already implemented cash transfer programs in agriculture, such as Telangana's Rythu Bandhu Scheme and the nationwide PM-KISAN scheme. These initiatives provide financial support to farmers but face challenges, including inclusion and exclusion errors. Universal income transfers could overcome some of these issues by simplifying implementation and reducing administrative costs.
- A common critique is that the wealthy would also benefit from UBI. However, in advanced economies, individuals pay taxes and receive benefits based on circumstances. Similarly, wealthier individuals would pay more in taxes than they receive from UBI, making the net effect fair.
Financial feasibility of UBI
- The main obstacle to UBI in India is its financial viability. Proposals suggest large transfers, amounting to 3.5%-11% of GDP, which would require cuts in other programs or significant tax hikes. A more modest approach could involve a smaller, universal transfer scheme, such as one pegged at 1% of GDP per capita.
- This would provide about ₹144 per month per citizen, similar to PM-KISAN, but extended to all citizens, including landless laborers. Though this amount may seem small, it aligns with poverty line estimates.
- Challenges remain, particularly in last-mile delivery of benefits. Issues like access to cash-out points and biometric authentication failures must be addressed for successful implementation.
- Despite fiscal constraints, a modified UBI could serve as a foundational policy, to which other targeted schemes, like those for women or vulnerable groups, could be added. Combining UBI with programs like MGNREGS could create a comprehensive safety net for various sections of society. The COVID-19 pandemic has shown the importance of both income and in-kind transfers in ensuring people's well-being during crises
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Answer (A)
Universal Basic Income (UBI) is a social welfare concept where all citizens of a country receive a regular, unconditional sum of money from the government. The primary objectives of UBI are to reduce poverty, address income inequality, and provide a financial safety net, particularly in the face of automation and technological advancements that may reduce job opportunities.
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Sixth Schedule of Indian Constitution
For Preliminary Examination: Current events of national and international importance
For Mains Examination: GS II - Indian Polity & Constitution
Context:
Ladakh-based activist Sonam Wangchuk ended his indefinite fast on Monday evening (October 21), after receiving a letter from the Union Ministry of Home Affairs on future talks about the Union Territory’s administration.
Read about:
Sixth Schedule of Indian Constitution
What’s the demand for the Sixth Schedule in Ladakh?
Key takeaways:
The Sixth Schedule, outlined in Article 244 of the Indian Constitution, enables the creation of tribal administrative areas known as Autonomous District Councils (ADCs) and Autonomous Regional Councils (ARCs). In Ladakh, where most residents are from Scheduled Tribes, ADCs may have up to 30 members serving five-year terms, empowered to govern matters such as land, forests, water resources, agriculture, village councils, health, sanitation, and local policing. Presently, there are 10 ADCs across the Northeast, including three each in Assam, Meghalaya, and Mizoram, and one in Tripura.
Wangchuk has stated that Ladakh residents are pushing for decentralization, as they feel lower-level bureaucracy may be influenced by industrial and business interests aiming to exploit the region’s valleys for mining.
Reasons Behind the Protest
Negotiations between the Union Ministry of Home Affairs, the Apex Body of Leh (ABL), and the Kargil Democratic Alliance (KDA) stalled in March. During these discussions, Home Minister Amit Shah proposed protections similar to Article 371 for Ladakh, addressing concerns around jobs, land, and cultural preservation. However, the government indicated it would not place Ladakh under the Sixth Schedule.
Following this, Wangchuk initiated a 21-day hunger strike in Leh, subsisting solely on water and salt and enduring sub-zero temperatures. A proposed ‘Pashmina march’ to the China border was later canceled after the administration reportedly warned of a potential Section 144 imposition. Wangchuk explained that traditional pashmina goat herders faced difficulties due to the loss of land to corporations establishing industrial or solar projects, as well as from increased Chinese activity near the Line of Actual Control (LAC), affecting their livelihoods
Follow Up Question
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Answer (B)
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| Subject | Topic | Description |
| History | Modern Indian History | Important Personalities |
| History | Modern Indian History | Independence and Partition |
| History | Modern Indian History | Constitutional Development in India |
| History | Modern Indian History | Peasants, Tribal and other movements |
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