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DAILY CURRENT AFFAIRS, 22 JUNE 2026

GROSS DOMESTIC PRODUCT (GDP)

 
 
1. Context
 
Over the last few months, it has made several upgrades to its statistical databases, improving their timeliness, representativeness, accuracy, and coverage. These improvements have been wide-ranging, covering the way India measures its gross domestic product (GDP), the value addition in the economy, industrial output, and price levels at the retail, wholesale, and producer levels
 
2. Gross Domestic Product (GDP)
 
Gross domestic product (GDP) is the total monetary or market value of all the finished goods and services produced within a country's borders in a specific time period. It is often used as a measure of a country's economic health
GDP provides insight into the overall economic health of a nation and is often used for comparing the economic output of different countries.

There are three primary ways to calculate GDP:

  1. Production Approach (GDP by Production): This approach calculates GDP by adding up the value-added at each stage of production. It involves summing up the value of all final goods and services produced in an economy.

  2. Income Approach (GDP by Income): This approach calculates GDP by summing up all the incomes earned in an economy, including wages, rents, interests, and profits. The idea is that all the income generated in an economy must ultimately be spent on purchasing goods and services.

  3. Expenditure Approach (GDP by Expenditure): This approach calculates GDP by summing up all the expenditures made on final goods and services. It includes consumption by households, investments by businesses, government spending, and net exports (exports minus imports).

3. Measuring GDP

GDP can be measured in three different ways:

  1. Nominal GDP: This is the raw GDP figure without adjusting for inflation. It reflects the total value of goods and services produced at current prices.

  2. Real GDP: Real GDP adjusts the nominal GDP for inflation, allowing for a more accurate comparison of economic performance over time. It represents the value of goods and services produced using constant prices from a specific base year.

  3. GDP per capita: This is the GDP divided by the population of a country. It provides a per-person measure of economic output and can be useful for comparing the relative economic well-being of different countries.

The GDP growth rate is the percentage change in the GDP from one year to the next. A positive GDP growth rate indicates that the economy is growing, while a negative GDP growth rate indicates that the economy is shrinking

The GDP is a useful measure of economic health, but it has some limitations. For example, it does not take into account the distribution of income in an economy. It also does not take into account the quality of goods and services produced.

Despite its limitations, the GDP is a widely used measure of economic health. It is used by economists, policymakers, and businesses to track the performance of an economy and to make decisions about economic policy

4. Gross Value Added (GVA)

 

Gross Value Added (GVA) is a closely related concept to Gross Domestic Product (GDP) and is used to measure the economic value generated by various economic activities within a country. GVA represents the value of goods and services produced in an economy minus the value of inputs (such as raw materials and intermediate goods) used in production. It's a way to measure the contribution of each individual sector or industry to the overall economy.

GVA can be calculated using the production approach, similar to one of the methods used to calculate GDP. The formula for calculating GVA is as follows:

GVA = Output Value - Intermediate Consumption

Where:

  • Output Value: The total value of goods and services produced by an industry or sector.
  • Intermediate Consumption: The value of inputs used in the production process, including raw materials, energy, and other intermediate goods.
5. GDP vs GNP

Gross Domestic Product (GDP) and Gross National Product (GNP) are both important economic indicators used to measure the size and health of an economy, but they focus on slightly different aspects of economic activity and include different factors. Here are the key differences between GDP and GNP:

  1. Definition and Scope:

    • GDP: GDP measures the total value of all goods and services produced within a country's borders, regardless of whether the production is done by domestic or foreign entities. It only considers economic activities that take place within the country.
    • GNP: GNP measures the total value of all goods and services produced by a country's residents, whether they are located within the country's borders or abroad. It takes into account the production of residents, both domestically and internationally.

  2. Foreign Income and Payments:

    • GDP: GDP does not consider the income earned by residents of a country from their economic activities abroad, nor does it account for payments made to foreigners working within the country.
    • GNP: GNP includes the income earned by a country's residents from their investments and activities abroad, minus the income earned by foreign residents from their investments within the country.

  3. Net Factor Income from Abroad:

    • GDP: GDP does not account for net factor income from abroad, which is the difference between income earned by domestic residents abroad and income earned by foreign residents domestically.
    • GNP: GNP includes net factor income from abroad as part of its calculation.

  4. Foreign Direct Investment:

    • GDP: GDP does not directly consider foreign direct investment (FDI) flowing into or out of a country.
    • GNP: GNP considers the impact of FDI on the income of a country's residents, both from investments made within the country and from investments made by residents abroad.

  5. Measurement Approach:

    • GDP: GDP can be calculated using three different approaches: production, income, and expenditure approaches.
    • GNP: GNP is primarily calculated using the income approach, as it focuses on the income earned by residents from their economic activities.
 
 
 
 
For Prelims: GDP, GVA, FDI, GNP
For Mains: 1.Discuss the recent trends and challenges in India's GDP growth
2.Examine the role of the service sector in India's GDP growth
3.Compare and contrast the growth trajectories of India's GDP and GNP
 
 
Previous Year Questions
1.With reference to Indian economy, consider the following statements: (UPSC CSE, 2015)
1. The rate of growth of Real Gross Domestic Product has steadily increased in the last decade.
2. The Gross Domestic Product at market prices (in rupees) has steadily increased in the last decade.
Which of the statements given above is/are correct?
(a) 1 only
(b) 2 only
(c) Both 1 and 2
(d) Neither 1 nor 2
Answer (b)
2.A decrease in tax to GDP ratio of a country indicates which of the following? (UPSC CSE, 2015)
1. Slowing economic growth rate
2. Less equitable distribution of national income
Select the correct answer using the code given below:
(a) 1 only
(b) 2 only
(c) Both 1 and 2
(d) Neither 1 nor 2
Answer (a)
Previous year UPSC Mains Question Covering similar theme:
Define potential GDP and explain its determinants. What are the factors that have been inhibiting India from realizing its potential GDP? (UPSC CSE GS3, 2020)
Explain the difference between computing methodology of India’s Gross Domestic Product (GDP) before the year 2015 and after the year 2015. (UPSC CSE GS3, 2021)
 
Source: indianexpress
 
 

WESTERN DISTURBANCES AND EL NINO

 
 
 
 
1. Context
 
 The U.S. National Oceanic and Atmospheric Administration (NOAA) confirmed this month that an El Niño has formed in the equatorial Pacific Ocean, and placed the odds at about 63% that it will strengthen into a “very strong” — colloquially, a “super” — event by the northern winter. India’s June rainfall, until the 16th, is roughly 35% below normal.
 
 
2. What are Western Disturbances?
 
 
  • Western Disturbances are weather systems that move eastward and bring rainfall. They develop in regions west of India, mainly around Afghanistan and Iran, and gain moisture from water bodies such as the Mediterranean Sea, Black Sea, Caspian Sea, and Arabian Sea.
  • These systems are generally extra-tropical cyclones formed due to the interaction between cold polar winds and warm tropical winds, creating low-pressure conditions.
  • They are carried by the subtropical westerly jet stream, a fast-flowing, high-altitude air current that travels from west to east above the Himalayan and Tibetan regions.
  • Western Disturbances occur most frequently during the winter season in the Northern Hemisphere, especially from December to March, and significantly affect the weather of northwestern India along with neighbouring countries like Pakistan, Afghanistan, and Tajikistan

 

3. El Niño Southern Oscillation (ENSO)

 

  • The El Niño–Southern Oscillation (ENSO) is a major climatic process characterised by variations in sea surface temperatures in the eastern Pacific Ocean along with associated changes in atmospheric conditions above it.
  • These shifts can disturb global atmospheric circulation patterns and thereby affect weather conditions across different parts of the world. ENSO has three phases — the warm phase known as El Niño, the cool phase called La Niña, and a neutral phase — and generally recurs at irregular intervals ranging from two to seven years.
  • Under neutral conditions, the eastern Pacific Ocean near the western coast of South America remains cooler compared to the western Pacific around Indonesia and the Philippines.
  • This temperature difference is maintained by easterly trade winds that push warm surface waters westward, allowing colder water from deeper layers to rise to the surface in the eastern Pacific.
  • During an El Niño event, the eastern Pacific experiences abnormal warming of surface waters. This weakens the moisture-laden winds reaching India and often leads to a weaker or delayed monsoon, causing dry conditions in several agricultural regions.
  • Studies have also linked El Niño with an increased occurrence and intensity of heatwaves in India.
  • In April, the U.S. Climate Prediction Center estimated a 61% probability of El Niño developing between May and July and expected it to continue through the year.
  • La Niña represents the reverse situation, where the eastern Pacific surface waters become cooler than usual.
  • This strengthens the moisture-carrying winds towards India and generally enhances the southwest monsoon. However, in severe cases, the resulting heavy rainfall can trigger floods and damage crops

 

4. What is a Heatwave?
 
 

A heat wave refers to a prolonged spell of abnormally high temperatures that are significantly above the average climatic conditions of a particular region. Since normal temperature levels differ across regions based on historical weather patterns, the definition of a heat wave also varies accordingly. Its intensity can further increase due to factors such as high humidity, strong winds, and the length of the hot spell.

According to the criteria used by the India Meteorological Department, a heat wave may be identified when the maximum temperature reaches at least 40°C in plain areas and 30°C in hilly regions. After this threshold is crossed, a heat wave can be officially declared on two main bases:

  • Departure from normal temperature:
    If the temperature is 4.5°C to 6.4°C above the seasonal average, it is classified as a heat wave. When the temperature exceeds this range, it may be categorised as a severe heat wave.
  • Absolute maximum temperature:
    A heat wave is automatically declared when the maximum temperature touches or surpasses 45°C. If the temperature reaches 47°C or more, it is considered a severe heat wave.
 
 
5. What are Wet bulb and Dry bulb Temperatures?
 
 
  • The temperature commonly recorded using a standard thermometer is known as the Dry Bulb Temperature. It represents the actual air temperature but does not take atmospheric moisture into consideration.
  • In contrast, Wet Bulb Temperature measures the lowest temperature that air can achieve through the evaporation of water, thereby indicating the efficiency of evaporative cooling under humid conditions.
  • Generally, the Wet Bulb Temperature remains lower than the Dry Bulb Temperature, and the gap between the two becomes larger when the air is drier.
  • According to the Sixth Assessment Report (AR6) of the Intergovernmental Panel on Climate Change, continuous exposure to wet bulb temperatures above 35°C can be life-threatening.
  • Even temperatures exceeding 31°C can pose serious risks during strenuous physical activity. Individuals with existing health conditions such as diabetes or cardiovascular diseases are particularly vulnerable, while outdoor workers and labourers face greater danger because of dehydration and prolonged heat exposure.
  • At the same time, the AR6 notes that the possibility of such extreme wet bulb temperatures persisting for more than a few hours remains very low
 
6.Impacts of heat waves in India
  • The frequent occurrence of heat waves also adversely affects different sectors of the economy.
  • For instance, the livelihood of poor and marginal farmers is negatively impacted due to the loss of working days.
  • Heatwaves also have an adverse impact on daily wage workers' productivity, impacting the economy.
  • Crop yields suffer when temperatures exceed the ideal range.
  • Farmers in Haryana, Punjab, and Uttar Pradesh have reported losses in their wheat crop in the past rabi season. Across India, wheat production could be down 6-7% due to heat waves.
  • Mortality due to heat waves occurs because of rising temperatures, lack of public awareness programs, and inadequate long-term mitigation measures.
  • According to a 2019 report by the Tata Center for Development and the University of Chicago, by 2100 annually, more than 1.5 million people will be likely to die due to extreme heat caused by climate change.
  • The increased heat wave will lead to an increase in diseases like diabetes, circulatory and respiratory conditions, as well as mental health challenges.
  • The concurrence of heat and drought events is causing crop production losses and tree mortality. The risks to health and food production will be made more severe by the sudden food production losses exacerbated by heat-induced labor productivity losses.
    These interacting impacts will increase food prices, reduce household incomes, and lead to malnutrition and climate-related deaths, especially in tropical regions.
 
 
For Prelims: Heat Wave, India Meteorological Department (IMD), El Nino, Equatorial Pacific Ocean, La Nina, Malnutrition, Heat Action Plans.
For Mains: 1. Examine the various adverse impacts caused by heat waves and how India should deal with them.
 
Previous Year Questions
 
1.What are the possible limitations of India in mitigating global warming at present and in the immediate future? (UPSC CSE 2010)

1. Appropriate alternate technologies are not sufficiently available.

2. India cannot invest huge funds in research and development.

3. Many developed countries have already set up their polluting industries in India.

Which of the statements given above is/are correct?

(a) 1 and 2 only

(b) 2 only

(c) 1 and 3 only

(d) 1, 2 and 3

Answer (a)

India faces challenges in addressing Global Warming: Developing and underdeveloped nations lack access to advanced technologies, resulting in a scarcity of viable alternatives for combating climate change. Being a developing nation, India relies partially or entirely on developed countries for technology. Moreover, a significant portion of the annual budget in these nations is allocated to development and poverty alleviation programs, leaving limited funds for research and development of alternative technologies compared to developed nations. Analyzing the statements provided: Statements 1 and 2 hold true based on the aforementioned factors. However, Statement 3 is inaccurate as the establishment of polluting industries by developed countries within India is not feasible due to regulations governing industrial setup

Mains

1.Bring out the causes for the formation of heat islands in the urban habitat of the world. (UPSC CSE Mains GS 1 2013)
 
 
Source: Indianexpress
 
 

SOUTHWEST MONSOON

 
 
1. Context
 
It has been a fortnight since the official commencement of the southwest monsoon season, but its performance has largely been sub-nominal so far. All-India rainfall stood 38% below average between June 1 and 17.
 
2. What is the southwest monsoon?
 
  • The southwest monsoon is a seasonal weather pattern that brings significant rainfall to large parts of South Asia, particularly India, between June and September
  • The southwest monsoon typically begins in early June and lasts until late September. It starts with the arrival of the monsoon winds in the southern part of India, usually marked by the onset over the state of Kerala
  • The southwest monsoon brings about 70-90% of India’s annual rainfall. The distribution of rainfall varies, with some regions receiving heavy rains, while others may experience scanty showers.
  • The Western Ghats, the northeastern states, and the Himalayan foothills typically receive very heavy rainfall.
  • The monsoon is critical for the Kharif crop season in India, which includes crops like rice, maize, pulses, and cotton. Adequate and timely monsoon rains are essential for a good harvest
  • The monsoon starts retreating from northwestern India in early September and completely withdraws from the Indian subcontinent by mid-October. This phase is also known as the retreating or northeast monsoon

Mechanism:

  • High-Pressure Area: During the summer, intense heating of the landmass in the Indian subcontinent creates a low-pressure area over northern India and the Tibetan Plateau.
  • Low-Pressure Area: The Indian Ocean remains relatively cooler, creating a high-pressure area.
  • Wind Movement: Air moves from the high-pressure area over the ocean to the low-pressure area over the land, carrying moisture from the ocean and resulting in rainfall.
The monsoon trough is an elongated area of low pressure extending from the heat low over Pakistan and northwestern India to the Bay of Bengal. It influences the distribution and intensity of the monsoon rains.
 
3. What are easterly and westerly winds?
 
Easterly Winds
 
  • Easterly and westerly winds refer to the direction from which the winds originate
  • Easterly winds are winds that blow from the east towards the west
  • Easterly winds can affect weather patterns, including the development of tropical storms and cyclones. For instance, easterly waves in the tropics can lead to the formation of tropical cyclones in the Atlantic and Pacific Oceans

Characteristics:

  • Trade Winds: One of the most well-known examples of easterly winds are the trade winds. These winds blow from the east towards the west in the tropics, from the subtropical high-pressure areas toward the equatorial low-pressure areas.
  • Tropical Regions: In the tropical regions, particularly between 30 degrees north and south of the equator, easterly winds are prevalent. These are crucial for the weather patterns and climatic conditions in these regions.
  • Monsoon Winds: During certain seasons, such as the northeast monsoon in India, easterly winds play a significant role. These winds bring dry air from the land towards the ocean during the winter months.
Westerly Winds
 
  • Westerly winds are winds that blow from the west towards the east
  • Westerly winds play a significant role in the weather of temperate regions, influencing the climate and the movement of storm systems.
  • They are also responsible for carrying warm and moist air from the oceans inland, affecting precipitation patterns in coastal and inland regions.
  • The westerlies can affect transoceanic travel and weather prediction due to their influence on the movement of high and low-pressure systems

Characteristics:

  • Prevailing Westerlies: These winds are predominant in the mid-latitudes (between 30 and 60 degrees north and south of the equator). They blow from the subtropical high-pressure belts towards the poles.
  • Jet Streams: High-altitude westerly winds known as jet streams are important in influencing weather patterns and the movement of weather systems across the globe. They are fast flowing and occur in the upper levels of the atmosphere.
  • Polar Front: In the mid-latitudes, the westerlies interact with polar easterlies near the polar front, leading to the development of extratropical cyclones and storms
 
 
4.How does monsoon occur in India?

Monsoons in India occur due to seasonal changes in wind patterns and temperature differences between land and sea.

Here's a concise explanation of the process:

  • Differential heating: During summer, the Indian landmass heats up more quickly than the surrounding Indian Ocean.
  • Low pressure system: The heated land creates a low-pressure area over the Indian subcontinent.
  • Wind direction shift: This low pressure draws in moisture-laden winds from the cooler Indian Ocean towards the land.
  • Orographic lift: As these winds encounter geographical features like the Western Ghats or the Himalayas, they are forced to rise.
  • Condensation and precipitation: The rising air cools, causing water vapor to condense and form clouds, leading to heavy rainfall.
  • Duration: This pattern typically lasts from June to September, bringing the majority of India's annual rainfall.
 
5.What are the conditions that determine the onset of monsoon?
 
  • The primary driver is the temperature difference between the land and the surrounding sea. During summer, the land heats up faster than the ocean, creating a low-pressure area over the land and a high-pressure area over the ocean. This pressure difference leads to the movement of moist air from the ocean to the land
  • Warm sea surface temperatures are crucial as they increase the evaporation rate, contributing to the formation of moist air masses that drive the monsoon rains.
  • The monsoon winds, which are part of the larger atmospheric circulation, shift according to the seasonal temperature differences. The southwest monsoon, for instance, is driven by the southwest winds that carry moisture from the Indian Ocean to the Indian subcontinent.
  • The geographical features, such as mountain ranges, play a significant role. For example, the Western Ghats in India force moist air to rise, cool, and condense, leading to heavy rainfall on the windward side
  • The movement and strength of the high-pressure systems over the oceans and low-pressure systems over the land influence the intensity and timing of the monsoon.
  • Phenomena such as El Niño and La Niña can affect the strength and timing of the monsoon. For example, El Niño can lead to weaker monsoons due to altered wind patterns and sea surface temperatures
6.What is the impact of La-Nina and El Nino on monsoon?
 
La Niña and El Niño, both phases of the El Niño-Southern Oscillation (ENSO) phenomenon, have significant impacts on the monsoon patterns around the world.
 
Here’s how each affects the monsoon:
El Niño
  • El Niño is generally associated with a weaker Indian monsoon. The warming of the central and eastern Pacific Ocean during El Niño tends to disrupt the normal atmospheric circulation patterns, leading to reduced rainfall over the Indian subcontinent.
  • The onset of the monsoon can be delayed, and the overall intensity of the rainfall during the monsoon season might be lower than usual
  •  El Niño often brings drier conditions to Southeast Asia and northern Australia, leading to droughts and reduced rainfall
  • Eastern and southern Africa may experience drier conditions as well
La Niña
  • La Niña, characterized by cooler-than-average sea surface temperatures in the central and eastern Pacific Ocean, is typically associated with a stronger Indian monsoon. It often leads to increased rainfall over the Indian subcontinent
  • The enhanced monsoon can lead to heavier rains and potentially more frequent and intense flooding
  • La Niña tends to bring wetter conditions to Southeast Asia and northern Australia, potentially causing heavy rains and flooding
  • La Niña can lead to wetter conditions in parts of northern South America
 
7.Way Forward
 
The intermittent development of a wind shear zone — where winds move with different velocities and directions — along latitudes 20 ° N between central and peninsular India
 
 
 
For Prelims: Indian and World Geography
For Mains: GS-I, GS-III: Important Geophysical phenomena and environment
 
 
Previous Year Questions
 
1.Consider the following statements: (UPSC CSE 2012)
 
1. The duration of the monsoon decreases from southern India to northern India.
2. The amount of annual rainfall in the northern plains of India decreases from east to west.
 
Which of the statements given above is/are correct?
A. 1 Only
B. 2 Only
C. Both 1 and 2
D. Neither 1 nor
Answer (C)
  • The duration of the monsoon indeed decreases from southern India to northern India. The southern part of India experiences the monsoon earlier and for a longer duration compared to the northern part.
  • The amount of annual rainfall in the northern plains of India decreases from east to west. The eastern part of the northern plains receives more rainfall compared to the western part, largely due to the influence of the Bay of Bengal branch of the Southwest Monsoon.
 
 
Source: The Hindu
 
 
 

HEATWAVES

1. Context 

HEATWAVES ARE not just a direct threat to human health, they also drive up concentrations of ground-level ozone that sharply aggravate mortality risks, a new study by Indian researchers has shown

2. About Heat Wave

  • A heatwave is a period of abnormally high temperatures, a common phenomenon in India during the months of May-June and in some rare cases even extends till July.
  • Indian Meteorological Department (IMD) classifies heat waves according to regions and temperature ranges. As per IMD, the number of heatwave days in India has increased from 413 over 1981-1990 to 600 over 2011-2020.
  • This sharp rise in the number of heatwave days has resulted due to the increasing impact of climate change.
  • The last three years have been La Niña years, which has served as a precursor to 2023 likely being an El Niño year. (The El Niño is a complementary phenomenon in which warmer water spreads west­east across the equatorial Pacific Ocean.)
  • As we eagerly await the likely birth of an El Niño this year, we have already had a heat wave occur over northwest India.
  • Heat waves tend to be confined to north and northwest India in El Niño years.

3. Understanding the Effects of Heat on the Body

Heat Exhaustion Occurs when excessive sweating leads to the draining of the body's resources, but it is not life-threatening. Recovery is possible by rehydrating and seeking cooler areas.
Heat stroke Results from an inability to regulate core body temperature, leading to severe symptoms and potential organ damage. Promptly reducing core temperature is crucial in these cases.
 

4. Symptoms and Medical care

Signs of heat stroke Extremely high body temperature without sweating, drowsiness, vomiting, reduced urination and impaired breathing.
Vulnerable populations Older adults, young children and individuals with comorbidities are more susceptible to heat-related impacts. However, heat stroke can affect individuals of any age.
 

5. Preventive Measure to Avoid Heat Stroke

Minimize exposure Stay indoors or seek shade during peak sunlight hours, especially between noon and 3 pm. Avoid strenuous activities during this time.
Stay hydrated Drink water regularly, even if not feeling thirsty. Consume hydrating fluids such as lassi, lemon water, buttermilk or ORS to maintain electrolyte balance.
Clothing and accessories Wear lightweight, light-coloured, loose-fitting cotton clothes. Use goggles, umbrellas and appropriate footwear for protection.
Home cooling Use curtains or shades to keep homes cool. Utilize damp clothes and cod baths to lower body temperature.
 

6. Role of Humidity and Night-time Temperatures

High humidity Increased perceived temperature and reduces the effectiveness of sweat evaporation, making it harder to cool down.
High night-time temperatures Light the body's recovery time, hindering the restoration of resources. Low night temperatures are essential for adequate recuperation.
 

7. Linking Heatwaves to Climate Change and Global Implications

Rising global temperatures Climate Change contributes to increased heatwave frequency and intensity, impacting human health.
Health Risks and Socioeconomic Impact Heatwaves can cause additional deaths, public health emergencies, reduced labour productivity and disruptions to essential services.
 

8. Criteria for Declaring Heat Waves in India

  • In plains maximum temperature of at least 40 °C or more 
  • In Hilly regions maximum temperature of at least 30 °C or more
  • Severe heat wave departure from normal temperature exceeds 6.40 °C

9. Impact of heat waves on Health

 
Health impacts of heat Heat-related illnesses range from heat cramps to heatstroke and hyperthermia.  Heat can also worsen existing conditions and lead to premature death.
Indirect health effects Heat affects human behaviour, disease transmission, health services, air quality and critical infrastructure.
 

10. Conclusion

  • Addressing heatwave deaths in India requires a multi-faceted approach involving government intervention, public awareness and preventive measures.
  • By understanding the effects of heat on the body, recognizing critical symptoms and implementing preventive strategies, the risk of heat-related illnesses and fatalities can be reduced.
  • Additionally, acknowledging the role of climate change and preparing for future heat waves is essential for safeguarding public health.
 
For Prelims: Heatwave, India Meteorological Department, National Disaster Management Authority, the Health Ministry, ORS, Humidity, high temperatures
For Mains: 
1. Climate change is considered a contributing factor to the increased frequency and intensity of heat waves. Discuss the measures that can be taken at national and international levels to address climate change and minimize its impact on public health. (250 Words)
 
 
 
Previous Year Questions
 
1. Arrange the following India Meteorological Headquarters in Chronological order of their establishment and select your correct answer from the codes given below:  (UPPSC Civil Service 2018) 
A. New Delhi
B. Kolkata
C. Shimla
D. Pune 
1. C D A B                2. B A D C              3. D B C A                 4. B C D A
 
Answer: 4
 
2. Consider the following statements: (MPSC Forest Services 2019)
(a) The Disaster Management Act was passed by the Parliament in 2005.
(b) The Union Home Minister Acts as a Chairperson of the National Disaster Management Authority (NDMA).
(c) The NDMA may have not more than nine members including Vice-Chairman.
(d) The tenure of the members of NDMA shall be five years.
Which of the statements given above are correct? 
1. (a), (b) and (c)         2. (a), (c) and (d)           3.  (b), (c) and (d)          4. All above
 
Answer: 2
 
3. National Disaster Management Authority is headed by (CDS 2021) 
A. the Prime Minister.        B. the Home Minister     C. the President.     D.  the Health Minister.
 
Answer: A
 
4. With reference to Ayushman Bharat Digital Mission, consider the following statements: (UPSC 2022)
1. Private and public hospitals must adopt it.
2. As it aims to achieve universal health coverage, every citizen of India should be part of it ultimately.
3. It has seamless portability across the country.
Which of the statements given above is/are correct?
A. 1 and 2 only           B.  3 only           C. 1 and 3 only          D. 1, 2 and 3
 
Answer: B
 
5. Consider the following statement: (UPSC 2018)
1. The Food Safety and Standards Act, 2006 replaced the Prevention of Food Adulteration Act, 1954.
2. The Food Safety and Standards Authority of India (FSSAI) is under the charge of the Director General of Health Services in the Union Ministry of Health and Family Welfare.
Which of the statements given above is/are correct?  
A. 1 only        B. 2 only              C.  Both 1 and 2         D. Neither 1 nor 2
 
Answer: A
 
6. What is the full form of ORS? (NHM UP CHO 2021)
A. Oral Recovered Solution
B. Oral Rehydration Salts
C. Oral Regenerate Salts
D. Oral Regenerate Solution
 
Answer: B
 
7. Consider the following statements with regard to atmospheric humidity: (UPSC ESE 2018)
1. Absolute humidity is the amount of water vapour per unit volume.
2. Hygrometer is used to measure relative humidity.
3. Dew point is the temperature at which the relative humidity is 75%.
Which of the above statements are correct?  
A. 1 and 2 only      B. 1 and 3 only         C. 2 and 3 only     D. 1, 2 and 3
 
Answer: A
 
8. Relative humidity is (ISRO Scientist Civil 2020) 
A. Something concerned with air conditioning
B. The ratio of moisture present in air to the capability of air to hold maximum moisture
C. The ratio of actual humidity to absolute humidity
D. Representative of amount of moisture held in air
 
Answer: B
 
 
 Source: The Indian Express & WHO
 
 
 

MONETARY POLICY COMMITTEE (MPC)

 
 
1. Context
 
The Reserve Bank of India’s (RBI’s) rate setting panel, Monetary Policy Committee (MPC), preferred to adopt a “wait and watch” approach and remain watchful and wary about the generalisation of inflation in the coming months against the backdrop of the West Asia conflict and its impact, according to minutes of the MPC meeting held on June 5
 

Monetary policy refers to the actions and strategies undertaken by a country's central bank to control and regulate the supply of money, credit availability, and interest rates in an economy. Its primary goal is to achieve specific economic objectives, such as price stability, full employment, and sustainable economic growth.

Central banks use various tools to implement monetary policy, including:

Interest Rates: Adjusting the interest rates at which banks lend to each other (known as the federal funds rate in the United States) influences borrowing and spending in the economy.

Open Market Operations: Buying or selling government securities in the open market to regulate the money supply. When a central bank buys securities, it injects money into the system, and when it sells them, it reduces the money supply.

Reserve Requirements: Mandating the amount of reserves banks must hold, affecting their ability to lend money.

By influencing the availability and cost of money, central banks aim to stabilize prices, control inflation, encourage or discourage borrowing and spending, and promote economic growth. However, the effectiveness of monetary policy can be influenced by various factors such as global economic conditions, fiscal policies, and market expectations.

3.What is the primary objective of the monetary policy?

The primary objective of monetary policy typically revolves around maintaining price stability or controlling inflation within an economy. Central banks often set an inflation target, aiming to keep it at a moderate and steady level. Stable prices help in fostering confidence in the economy, encouraging investment, and ensuring that the value of money remains relatively constant over time.

However, while controlling inflation is often the primary goal, central banks might also consider other objectives, such as:

Full Employment: Some central banks have a secondary objective of supporting maximum employment or reducing unemployment rates.

Economic Growth: Encouraging sustainable economic growth by managing interest rates and credit availability to stimulate or cool down economic activity.

Exchange Rate Stability: In some cases, maintaining stable exchange rates might be an important consideration, especially for countries with open economies heavily reliant on international trade.

These additional objectives can vary depending on the economic conditions, priorities of the government, and the central bank's mandate. Nonetheless, ensuring price stability is typically the fundamental goal of most monetary policies, as it forms the basis for a healthy and growing economy.

4. Monetary Policy Committee (MPC)

  • In line with the amended RBI Act, 1934, Section 45ZB grants authority to the central government to establish a six-member Monetary Policy Committee (MPC) responsible for determining the policy interest rate aimed at achieving the inflation target.
  • The inaugural MPC was formed on September 29, 2016. Section 45ZB stipulates that "the Monetary Policy Committee will ascertain the Policy Rate necessary to meet the inflation target" and that "the decisions made by the Monetary Policy Committee will be obligatory for the Bank."
  • According to Section 45ZB, the MPC comprises the RBI Governor as the ex officio chairperson, the Deputy Governor overseeing monetary policy, a Bank official nominated by the Central Board, and three individuals appointed by the central government.
  • The individuals chosen by the central government must possess "capabilities, ethical standing, expertise, and experience in economics, banking, finance, or monetary policy" (Section 45ZC)
5.Monetary Policy Committe and Inflation
  • The Monetary Policy Committee (MPC) plays a crucial role in managing inflation through its decisions on the policy interest rate.
  • When inflation is too high, the MPC might decide to increase the policy interest rate. This action aims to make borrowing more expensive, which can reduce spending and investment in the economy.
  • As a result, it could help decrease demand for goods and services, potentially curbing inflation.
  • Conversely, when inflation is too low or the economy needs a boost, the MPC might decrease the policy interest rate.
  • This move makes borrowing cheaper, encouraging businesses and individuals to spend and invest more, thus stimulating economic activity and potentially raising inflation closer to the target level.
  • The MPC's goal is to use the policy interest rate as a tool to steer inflation toward a target set by the government or central bank.
  • By monitoring economic indicators and assessing the current and expected inflation levels, the MPC makes informed decisions to maintain price stability within the economy
6. Way forward
With more than half of the current financial year witnessing positive developments in the economy, the full financial year should conclude as projected with a strong growth performance and macroeconomic stability. Yet risks on the downside persist. Inflation is one of them that has kept both the government and the RBI on high alert. Financial flows in the external sector also need constant monitoring as they impact the value of rupee and the balance of payments. A fuller transmission of the monetary policy may also temper domestic demand
 
 
 
 
For Prelims: Economic and Social Development
For Mains: General Studies III: Indian Economy and issues relating to planning, mobilization, of resources, growth, development and employment.
 
 
Previous Year Questions
 
1. Consider the following statements:  (UPSC 2021)
1. The Governor of the Reserve Bank of India (RBI) is appointed by the Central Government.
2. Certain provisions in the Constitution of India give the Central Government the right to issue directions to the RBI in the public interest.
3. The Governor of the RBI draws his natural power from the RBI Act.
Which of the above statements is/are correct? 
A. 1 and 2 only    B.  2 and 3 only     C. 1 and 3 only     D. 1, 2 and 3
 
Answer: C
 
2. Concerning the Indian economy, consider the following: (UPSC 2015)
  1. Bank rate
  2. Open Market Operations
  3. Public debt
  4. Public revenue

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

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

Answer: C

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

(a) Market rate of interest is likely to fall.

(b) Central bank is no longer making loans to commercial banks.

(c) Central bank is following an easy money policy.

(d) Central bank is following a tight money policy.

Answer: (d) 

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

1. It decides the RBI's benchmark interest rates.

2. It is a 12-member body including the Governor of RBI and is reconstituted every year.

3. It functions under the chairmanship of the Union Finance Minister.

Select the correct answer using the code given below:

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

Answer: A
 
Source: Indianexpress
 
 

LOGISTICS SUPPORT AGREEMENT (LSA)

 
 
 
1. Context
 
The India-Russia bilateral Logistics Support Agreement (LSA), termed the Reciprocal Exchange of Logistics Agreement (RELOS), which had been dragging on for several years, was operationalised in January this year. There was a flutter on social media recently with claims that it allows the stationing of 3,000 Russian troops on Indian soil or vice versa, painting it as a military alliance. However, it is like any LSA, the likes of which India has signed with other countries.
 
2. What are Logistics Support Agreements?
 
 
  • Logistics Support Agreements (LSAs) are basic defence cooperation arrangements between countries that facilitate the mutual use of military facilities such as bases and ports for refuelling, repairs, replenishment, and other logistical requirements.
  • These agreements are primarily administrative in nature and specify the circumstances under which such support may be extended, including joint military exercises, training activities, naval port visits, humanitarian assistance, and disaster relief operations.
  • With growing military-to-military engagement and strategic partnerships, LSAs help streamline procedures and minimise bureaucratic hurdles.
  • For example, India and the United States signed the Logistics Exchange Memorandum of Agreement (LEMOA) in 2016, which was India’s first logistics support pact of this kind.
  • The agreement establishes a framework for reciprocal access to logistics, supplies, and services during activities such as joint exercises, training programmes, and humanitarian or disaster relief missions.
  • Clarifying the scope of the agreement, then Minister of State for Defence Subhash Bhamre informed Parliament in February 2017 that LEMOA does not permit the establishment of military bases or any permanent basing arrangements.
  • Some exaggerated interpretations suggest that logistics agreements allow countries to station troops on each other’s territory.
  • Applying this logic, it is sometimes argued that if India and Russia could deploy forces on each other’s soil, India and the United States could do the same under LEMOA. However, such claims are incorrect.
  • As clarified by the Defence Ministry, logistics support agreements merely facilitate logistical cooperation and do not authorise the permanent deployment or stationing of troops, a principle that applies to all LSA
 
 
3. What is the Agreement with Russia?
 
 
  • Similar to other logistics support arrangements, the Reciprocal Exchange of Logistics Support (RELOS) agreement lays down the framework for providing assistance to military units, facilitating port visits by naval vessels, enabling the use of airspace and airfield infrastructure by military aircraft, and organising logistical and technical support for warships, aircraft, and other military equipment of both countries.
  • The agreement was concluded in Moscow on February 18, 2025, and was formally ratified after Russian President Vladimir Putin approved the corresponding federal law on December 15, 2025.
  • According to the Kremlin, the pact establishes procedures governing the deployment of military contingents, naval port calls, and the use of aviation infrastructure and airspace by the armed forces of India and Russia.
  • In broad terms, RELOS encompasses cooperation during joint exercises, training programmes, humanitarian assistance and disaster relief (HADR) operations, repair and maintenance facilities, medical assistance, supply of food and technical materials, and reciprocal access to military installations, including ports and airbases, to support personnel operating ships and aircraft.
  • The agreement specifies an upper ceiling of 3,000 personnel, which serves as a broad limit considering the size of military contingents and the number of ships or aircraft involved in mutually agreed engagements.
  • It remains in force for five years and allows for modifications in the future to accommodate evolving requirements. The duration for the deployment of personnel and equipment would depend on the nature and schedule of visits agreed upon by both countries.
  • In practice, India’s defence engagements with several countries are much more extensive. For example, Indian armed forces regularly participate in exercises with the United States and other partners.
  • Officials have clarified that RELOS does not provide for the permanent deployment of troops or military assets.
  • Its provisions are intended to be implemented only during agreed activities such as joint exercises, port visits, or other mutually approved engagements. No arrangement for permanent or long-term stationing forms part of the agreement.
  • A notable feature of RELOS is that it grants India access to Russian military facilities in the Arctic region.
  • This assumes greater significance as both countries seek to deepen cooperation in the Arctic, particularly in view of emerging navigation routes made increasingly accessible by climate change and global warming
 
 
4. Logistics Exchange Memorandum of Agreement (LEMOA)
 
 
  • The Logistics Exchange Memorandum of Agreement (LEMOA) is a bilateral logistics support arrangement signed between India and the United States in 2016.
  • It establishes a framework that enables the armed forces of both countries to access each other’s military facilities for refuelling, replenishment, repairs, and other logistical requirements on a reciprocal basis.
  • The agreement is intended to facilitate cooperation during joint military exercises, training activities, port visits, and humanitarian assistance and disaster relief (HADR) operations.
  • LEMOA simplifies administrative procedures and enhances interoperability between the two militaries by providing access to logistics supplies and services when required.
  • However, the agreement does not permit the establishment of military bases or permanent basing arrangements on each other’s territory.
  • This clarification was provided by the Government of India, which emphasized that the pact is purely logistical in nature and does not involve the stationing of troops or military assets.
  • As one of the key foundational defence agreements between India and the United States, LEMOA has strengthened strategic cooperation and improved the ability of both countries to undertake coordinated operations and respond effectively to regional and humanitarian contingencies
 
5. Logistics Support Agreements (LSAs) Signed by India with Various Countries
 
 

India has entered into several Logistics Support Agreements (LSAs) with strategic partners such as the United States, France, Australia, Japan, Singapore, and South Korea. These arrangements facilitate reciprocal access to military facilities and enhance defence cooperation, interoperability, and maritime security.

  • India–United States
 

As part of efforts to deepen defence relations, India and the United States have concluded three key foundational agreements:

  • Logistics Exchange Memorandum of Agreement (LEMOA), signed in 2016, enables the armed forces of both countries to access each other’s logistics infrastructure for refuelling, replenishment, maintenance, and other support services. The agreement significantly expands the operational reach of the Indian Navy. For instance, access to American facilities such as Guam enhances India's ability to sustain operations across distant waters.
  • Communications Compatibility and Security Agreement (COMCASA) was concluded in 2018. It facilitates the use of secure and encrypted communication systems, thereby enabling the effective deployment of advanced military platforms, including the P-8I maritime surveillance aircraft operated by the Indian Navy.
  • Basic Exchange and Cooperation Agreement (BECA), signed in November 2020, provides India with access to U.S. geospatial intelligence and satellite data. This improves the precision and targeting capability of long-range weapons and strengthens situational awareness.
  • India–France
  • The logistics agreement between India and France seeks to enhance strategic cooperation and contribute to peace and stability in the Indian and Pacific Oceans. It also enables closer collaboration between the two navies, including the exchange of maritime intelligence and improved operational coordination.
 
  • India–Australia
 
  • India and Australia signed the Mutual Logistics Support Agreement (MLSA) on June 4, 2020. Notably, it was the first bilateral agreement concluded through a virtual summit. The pact reflects the shared commitment of both countries to strengthening maritime cooperation and maintaining a free, open, and inclusive Indo-Pacific region.
 
  • India–Japan

 

  • In September 2020, India and Japan signed the Acquisition and Cross-Servicing Agreement (ACSA). The agreement facilitates reciprocal logistical support between the armed forces of the two nations and promotes closer defence cooperation in the Indo-Pacific.
 
  • India–Singapore

 

  • India and Singapore concluded a logistics support agreement on June 1, 2020. The arrangement covers a broad spectrum of military assets, including warships, submarines, aircraft, and shipborne helicopters, thereby enhancing naval cooperation between the two countries.
 
  • India–South Korea
  • India signed a Mutual Logistics Support Agreement with South Korea in September 2019. The agreement has expanded the operational footprint of the Indian Navy, extending its access and presence towards the northern reaches of the South China Sea and strengthening maritime engagement in East Asia.

 

 
 
7.  Way Forward
 
 
Overall, these logistics agreements have enhanced India's military interoperability with partner countries, expanded the operational reach of its armed forces, and reinforced its strategic presence across the Indo-Pacific region.

Although the partner countries differ, the underlying framework and objectives of these arrangements remain largely identical. They are intended to facilitate joint exercises, training activities, port visits, and other forms of military cooperation by simplifying access to logistical resources and support services.

In addition, India has a logistics support arrangement with Oman, which operates within the broader framework of the bilateral defence cooperation agreement between the two countries. Together, these agreements have enhanced the operational reach of the Indian armed forces and strengthened India's strategic partnerships across different regions.

 

 

For Prelims: Logistics Exchange Memorandum of Agreement (LEMOA),  Logistics Support Agreement (LSA), India and Russia
 
For Mains: GS II - International relations
 
 
Source: The Hindu
 
 
 

THE REALITY BEHIND THE FALLING OF NET FDI

 
 
 
 
1. Context
 

India’s net FDI has declined sharply despite strong gross inflows, underlining the impact of disinvestment/capital repatriation; investor classes, modes of entry, and exit strategies can have important implications for technology transfer, industrial development, and external sustainability

 

2. Background of the Situation

 

  • India’s net Foreign Direct Investment (FDI) has witnessed a sharp decline over the past few years, sparking differing interpretations.
  • Critics argue that the weakening net inflows reflect a deterioration in the country’s investment environment, whereas the Chief Economic Adviser maintains that robust gross FDI inflows and increasing investment in the manufacturing sector demonstrate the underlying strength of the economy.
  • According to him, the subdued net FDI figures are largely the result of higher profit repatriation by foreign investors and growing overseas investments by Indian companies.
  • However, this debate fails to address a more fundamental issue. By concentrating primarily on aggregate FDI figures, both perspectives overlook the evolving nature of international capital flows and the Balance of Payments (BoP) framework that determines how investment inflows and outflows are recorded and interpreted.
  • For Balance of Payments accounting, net FDI is derived by subtracting outward investment and capital repatriation from total inward FDI inflows.
  • India’s net FDI, which stood at a peak of $44.0 billion in 2020–21, declined dramatically to less than $1 billion in 2024–25 before recovering modestly to $7.6 billion in 2025–26.
  • During the same period, gross FDI inflows reached $94.6 billion, highlighting the significant difference between gross and net investment figures.
  • It is also important to understand the evolution of India’s FDI policy. When economic liberalization was introduced in 1991, the policy framework primarily sought to facilitate technology transfer, promote exports, and conserve foreign exchange reserves.
  • Over time, however, the emphasis gradually shifted toward attracting larger volumes of foreign investment, while relatively less attention was paid to the long-term external payment obligations and the overall quality of investments entering the country
 
 
3. Three types of FDI
 
 
  • Foreign Direct Investment (FDI) is commonly perceived as a long-term investment that transfers technology, managerial expertise, and productive capacity to the host economy.
  • In reality, however, FDI consists of different categories of investors, each characterized by distinct objectives, investment strategies, and exit horizons.
  • The first category is Real Foreign Direct Investment (RFDI), which includes conventional multinational corporations possessing advanced technology, globally recognized brands, and the expertise required to establish manufacturing and service operations.
  • Such investments are typically strategic in nature and involve long-term commitments to the host country.
  • The second category comprises financial investors, such as private equity funds, venture capital firms, sovereign wealth funds, and institutional asset managers.
  • Unlike traditional multinational enterprises, these investors primarily seek capital appreciation and generally plan to exit their investments after achieving targeted returns.
  • The third category consists of diaspora investments and Special Purpose Vehicles (SPVs). These investments often involve funds mobilized overseas and routed through offshore financial centres.
  • In some cases, they may also include the practice of round-tripping, where Indian capital is invested abroad and subsequently reinvested into India through foreign jurisdictions.
  • Data on remittance-level FDI for the four-year period from 2022–23 to December 2025–26 indicate that Real FDI accounted for approximately 41.9% of effective inflows. Financial investors contributed a comparable 40.5%, while the remaining 17.6% originated from diaspora investments and SPVs associated with India.
  • The investment approach of financial investors naturally implies eventual exits, which can lead to significant capital repatriation.
  • An illustrative example occurred in 2025, when Temasek of Singapore exited its investment in Schneider Electric India Ltd., reportedly earning $6.4 billion from an initial investment of $637 million made in 2020.
  • During the same calendar year, total recorded divestments reached $52 billion, of which 45 major exits by foreign private equity and venture capital firms accounted for nearly $29 billion in capital outflows.
  • An examination of effective FDI inflows also reveals a declining trend in investment directed toward India’s manufacturing sector over three successive four-year periods.
  • Particularly noteworthy is the fact that Real FDI in manufacturing represented only 10.6% of total effective inflows during the latest four-year period, suggesting a reduced share of long-term productive investment in this crucial sector
 
 
4. Not All FDI Represents Fresh Capital
 
  • One significant limitation of relying on gross FDI figures is that they often combine genuine new investments with various corporate restructuring transactions.
  • These include intra-group ownership transfers, mergers and acquisitions, share swaps, and the conversion of previously issued non-equity instruments, such as External Commercial Borrowings (ECBs) and convertible debentures, into equity.
  • Although such transactions alter the ownership or capital structure of companies, they do not necessarily bring additional foreign capital into the Indian economy.
  • As a result, gross FDI statistics may overstate the amount of fresh investment actually entering the country.
  • Between 2014–15 and December 2025–26, India received approximately $560 billion in equity inflows. However, an estimated $40 billion of this total consisted of accounting and restructuring transactions rather than new capital injections.
  • Consequently, these figures should be interpreted with caution when assessing the true magnitude of foreign investment.
  • Moreover, a few exceptionally large corporate deals can significantly influence annual FDI numbers and sector-wise trends.
  • High-value transactions involving companies such as Bosch and Meesho Technologies illustrate how individual restructuring or ownership changes can distort the overall picture of FDI inflows, even when they do not generate fresh investment for the economy
 
 
5. Disinvestment as a Key Driver of Declining Net FDI
 
 
  • Before examining the reasons behind India’s low or even negative net Foreign Direct Investment (FDI) in certain periods, it is important to clarify a common misconception. The official argument that profit repatriation is primarily responsible for reducing net FDI can be misleading.
  • According to the Balance of Payments (BoP) framework, profits remitted abroad in the form of dividends are classified as investment income under the current account.
  • While these payments contribute to widening the Current Account Deficit (CAD), they do not directly affect the calculation of net FDI.
  • Instead, the principal factor behind subdued net FDI is disinvestment and the repatriation of capital, both of which are recorded in the financial account of the BoP.
  • Similarly, the recent rise in Outward Foreign Direct Investment (OFDI) deserves a more nuanced interpretation than simply viewing it as evidence of the growing maturity of Indian corporations.
  • Between 2023–24 and 2025–26, nearly 45% of India’s outbound investment, amounting to $65 billion, was directed toward the financial, insurance, and business services (FIB) sector.
  • Among the destination countries, Singapore accounted for 27% of the total, while the United Arab Emirates (UAE) received 11%.
  • A substantial portion of these investments was routed to holding companies and Special Purpose Vehicles (SPVs) rather than directly into operational businesses.
  • These multidirectional capital movements, whether through GIFT City or other offshore jurisdictions, suggest that outward FDI can represent both genuine international expansion by Indian firms and the recycling or return of previously shifted capital.
  • Consequently, a rise in OFDI should not automatically be interpreted as a sign of corporate maturity alone.
  • While many Indian companies invest abroad to acquire technology, resources, or global market access, some investments may involve the re-routing of capital through different jurisdictions before it eventually returns to India
 
 
6. Understanding the Channels of Capital Outflows
 
 
  • Between 2022–23 and 2025–26, India witnessed substantial FDI inflows, but these were accompanied by equally significant outflows through various current and capital account transactions.
  • Although gross inward equity FDI amounted to $317.8 billion (or $230.6 billion after excluding reinvested earnings), the pattern of associated outflows presents a far more intricate picture.
  • A major component of these outflows was disinvestment and capital repatriation, recorded under the capital account, which totalled $178.9 billion. These outflows were largely driven by financial investors exiting their investments through mechanisms such as secondary market sales, strategic stake sales, initial public offering (IPO) exits, and share buybacks.
  • They also included Offers for Sale (OFS) by foreign promoters in companies such as Hyundai and LG. In addition, some traditional foreign investors divested their holdings, as illustrated by Wistron’s sale of its Indian operations to the Tata Group.
  • Another significant outflow arose from dividend remittances, which are recorded under the current account.
  • During this period, multinational enterprises (MNEs) and their affiliates transferred approximately $118.9 billion abroad as profits distributed to their parent companies, excluding the portion retained as reinvested earnings.
  • Outflows were also generated through payments for intellectual property rights (IPR), including royalties and licensing fees.
  • These payments, attributable to MNE subsidiaries and affiliates and estimated at $46.6 billion (assuming they constituted about 75% of total IPR payments), often serve as an alternative mechanism for transferring profits to parent entities.
  • Furthermore, Indian entities collectively remitted around $250 billion toward technical, consultancy, and service-related payments.
  • However, distinguishing the share attributable to foreign-owned enterprises from that of purely domestic firms remains difficult due to data limitations.
  • Even after excluding Outward Foreign Direct Investment (OFDI) and payments for technical and consultancy services, the combined outflows arising from disinvestment, dividend remittances, and IPR-related payments amounted to approximately $344.4 billion
  •  This indicates that for every dollar of fresh foreign investment entering India (excluding reinvested earnings), nearly $1.50 flowed out through these channels.
  • The trend has become increasingly pronounced over the past decade. Between 2014–15 and 2017–18, about 56 cents flowed out for every dollar of fresh inflow.
  • This ratio increased to 70 cents during 2018–19 to 2021–22 and has since risen to its current elevated level, reflecting a growing imbalance between fresh capital inflows and associated outflows
 
 
7. Way Forward
 
The discussion above illustrates that public debates on Foreign Direct Investment (FDI) often rely on an incomplete understanding of its nature and implications. FDI is not a homogeneous form of investment; rather, it comprises diverse categories of investors, varying modes of entry, and different exit strategies, each of which has distinct consequences for technology transfer, industrial development, and the country’s external sector sustainability. Moreover, the manner in which global FDI statistics are compiled and reported further complicates their interpretation. Therefore, a comprehensive assessment of FDI requires looking beyond headline figures and examining the quality, composition, and long-term economic impact of these investment flows
 
 
 
For Prelims: Foreign Direct Investment (FDI), initial public offering (IPO), Current Account Deficit (CAD)
 
For Mains: GS III - Economy
 
 
 
Previous Year Questions
 
1. Both Foreign Direct Investments (FDI) and Foreign Institutional Investor (FII) are related to investment in a country. (UPSC CSE 2011)
 
Which one of the following statements best represents an important difference between the two?
A.FII helps bring better management skills and technology, while FDI only brings in capital
B.FII helps in increasing capital availability in general, while FDI only targets specific sectors C.FDI flows only into the secondary markets, while FII targets primary market
D.FII is considered to the more stable than FDI
 
Answer (B)
Source: The Hindu
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