Why in News?

• The Indian Prime Minister (PM) visited the United Arab Emirates (UAE) during his multi-nation European tour and held talks with UAE President Mohamed bin Zayed Al Nahyan in Abu Dhabi.
• The visit took place against the backdrop of escalating tensions in West Asia, including Iranian missile and drone attacks on the UAE and concerns over disruptions in global energy supplies through the Strait of Hormuz.
• India and the UAE signed several major agreements (key highlights below), and the UAE also announced investments worth USD 5 billion in India.

What’s in Today’s Article?

• India’s Strong Support to UAE Amid West Asia Conflict
• Energy Security as the Central Focus
• Defence and Security Cooperation
• Maritime and Shipping Cooperation
• Technology and Digital Cooperation
• Trade and Connectivity Initiatives
• UAE Investments in India
• Strategic Significance of India-UAE Relations
• Challenges and Concerns
• Way Forward
• Conclusion

India’s Strong Support to UAE Amid West Asia Conflict:

• The Indian PM strongly condemned the attacks on the UAE and reaffirmed India’s solidarity with the Emirates.
• Major diplomatic messages:
  • India emphasised the importance of dialogue and diplomacy in resolving the West Asia conflict.
  • India reiterated support for restoring peace and stability in the region, by stressing that the Strait of Hormuz must remain “free, open and safe”.
• Strategic importance of Strait of Hormuz: It is one of the world’s most critical maritime chokepoints as -
  • A large share of global crude oil and LNG trade passes through it.
  • India heavily depends on Gulf energy imports routed through this passage.
  • Any disruption directly impacts India’s energy security, inflation, shipping costs, food and fertiliser supply chains.

Energy Security as the Central Focus:

• Strategic petroleum and LPG agreements: Energy security emerged as the most significant outcome of the visit.
• India-UAE energy partnership: The UAE is -
  • India’s 4th-largest crude oil supplier.
  • India’s largest supplier of LPG, meeting nearly 40% of India’s LPG requirement.
• Key agreements signed:
  • ISPRL–ADNOC strategic collaboration:
    • UAE participation in India’s Strategic Petroleum Reserves (SPRs) to increase to 30 million barrels.
    • India currently maintains strategic reserves through underground facilities at Visakhapatnam, Mangaluru, and Padur. In 2018, ADNOC stored over 5 million barrels of crude oil in India’s Mangaluru SPR facility.
    • Possible collaboration on the LNG storage facilities, LPG storage facilities, strategic gas reserves in India.
    • Significance: Strengthens India’s energy resilience during geopolitical crises, reduces vulnerability to supply disruptions, and enhances strategic autonomy in energy management.
• Long-term LPG supply agreement: A separate agreement between the IOCL and the ADNOC to ensure long-term and stable LPG supply, support India’s domestic cooking fuel demand, and help stabilise prices and supply chains.

Defence and Security Cooperation:

• Framework for strategic defence partnership: India and the UAE finalised a framework agreement to deepen defence cooperation.
• Areas of cooperation: Defence industrial collaboration, innovation and advanced technology, joint training and military exercises, maritime security, cyber defence, secure communications, etc.
• Strategic significance:
  • Reflects India’s growing security engagement in the Gulf region.
  • Enhances maritime cooperation in the Indian Ocean Region (IOR).
  • Supports India’s objective of safeguarding sea lanes and energy routes.

Maritime and Shipping Cooperation:

• Shipbuilding and ship repair cluster: MoUs between the Cochin Shipyard Limited and the Drydocks World for the -
  • Establishment of a ship-repair cluster at Vadinar, Gujarat.
  • Offshore fabrication facilities under India’s Maritime Development Fund Scheme.
  • Skill development initiatives in ship repair and shipbuilding.
• Importance: Boosts India’s maritime economy. Supports the Sagarmala Positions India as a global maritime services hub. Generates skilled employment.

Technology and Digital Cooperation:

• Supercomputing and AI collaboration: Partnership between the C-DAC and the G42 for setting up an “8 Exaflop Supercomputing Cluster”.
• Significance:
  • Enhances India’s AI and high-performance computing capabilities.
  • Supports research in the AI, climate modelling, defence simulations, and big data analytics.
  • Reflects emerging India-UAE cooperation in frontier technologies.

Trade and Connectivity Initiatives:

• Operationalisation of virtual trade corridor: India and the UAE operationalised a Virtual Trade Corridor under the MAITRI framework.
• Objectives: Link customs and port authorities digitally, reduce logistics costs, cut cargo transit time, and improve customs coordination and trade efficiency.
• Importance: Deepens commercial integration, facilitates ease of doing business, and strengthens India’s role in global supply chains.

UAE Investments in India:

• Announcement: The UAE announced investments worth USD 5 billion in India.
• Investment components:
  • Abu Dhabi Investment Authority (ADIA) and NIIF: Up to USD 1 billion in Indian infrastructure.
  • Emirates NBD: USD 3 billion investment in RBL Bank.
  • International Holding Company: USD 1 billion investment in Sammaan Capital.
• Importance:
  • Reflects UAE’s long-term confidence in India’s growth story.
  • Supports infrastructure financing and banking sector expansion.
  • Strengthens bilateral investment partnership.

India-UAE Relations:

• Overview:
  • India and the UAE established diplomatic relations in 1972. These relations gained a new momentum to a new Comprehensive and Strategic partnership when the Indian PM visited UAE in 2015.
  • Underpinned by the India-UAE Comprehensive Economic Partnership Agreement (CEPA), bilateral trade exceeds $100 billion.
  • UAE is India’s third largest trading partner after China and US, while UAE is the second largest export destination of India (after the US).
  • Both nations cooperate in multilateral groups like I2U2 (India, Israel, UAE, US) and are key stakeholders in the India-Middle East-Europe Economic Corridor (IMEC).
  • The UAE hosts the largest Indian diaspora (3.5 million) and is a primary source of India's foreign remittances.
• Strategic significance: Growing Comprehensive Strategic Partnership, and Gulf outreach under India’s “Link West Policy”.

Challenges and Concerns:

• Regional instability in West Asia: Escalating Iran-UAE tensions threaten energy supply chains. Risk of disruption in the Strait of Hormuz. Attacks on shipping routes and energy infrastructure can destabilise global trade.
• India’s energy dependence: Heavy reliance on Gulf imports exposes India to geopolitical shocks.
• Balancing regional diplomacy: India must maintain balanced relations with UAE, Iran, Saudi Arabia, and Israel, without compromising strategic interests.

Way Forward:

• Diversify: Energy sources and suppliers.
• Expand: Strategic petroleum reserves.
• Accelerate: Renewable energy transition.
• Improve: Maritime domain awareness.
• Promote: Joint production and defence technology transfer.
• Improve: Logistics integration through digital corridors and port modernisation.
• Continue: Strategic engagement with all major regional powers.

Conclusion:

• The latest India-UAE agreements reflect the transformation of India-UAE ties from a traditional energy relationship into a multidimensional strategic partnership.
• This will have significant implications for regional stability, economic growth and India’s global strategic positioning.

Why in the News?

• The US-Iran conflict has caused a sharp spike in crude oil prices, prompting the Indian government to hike fuel prices and raising concerns about the impact on inflation, growth, and the country's external sector.

What’s in Today’s Article?

• Crude Oil Imports (India’s Dependence, Historical Context)
• Impact of Rising Crude Oil Prices (Fuel Prices, Economic Growth, Trade Balance, Govt Finances, Way Forward)

India's Dependence on Crude Oil Imports

• India is one of the world's largest consumers of crude oil and imports nearly 85% of its requirements.
• This makes the Indian economy highly vulnerable to fluctuations in global oil prices, particularly during geopolitical crises in oil-producing regions like West Asia.
• Crude oil prices affect virtually every aspect of India's economy, from household budgets and inflation to GDP growth, trade balance, exchange rates, and government finances.
• A sustained rise in crude prices can therefore create cascading effects across the economy.

Historical Context: A Decade of Low Oil Prices Ending

• Between 2011-12 and 2013-14, the Indian basket of crude oil ranged from $106 to $114 per barrel.
• After that, global crude prices fell sharply, dropping to nearly one-third of the previous levels.
• For the next 12 years, the crude oil prices touch the $100 mark again.
• However, the first two months of the current financial year, April and May 2026, recorded the Indian basket of crude oil at $115 and $106 per barrel, respectively.
• If prices remain near $100 per barrel for the full year, it would represent an increase of around 40% over the previous year's cost.

Impact on Retail Fuel Prices

• Higher crude oil prices typically translate into higher retail prices for petrol, diesel, kerosene, and aviation turbine fuel (ATF).
• However, the transmission is not always direct; governments often modulate the impact through taxes and subsidies.
• Interestingly, even when crude prices crashed during 2014-15 to 2020-21, retail prices of petrol and diesel often remained elevated due to higher excise duties imposed by the government.
• In 2025-26, the price of petrol in Delhi stood at Rs. 94.8 per litre and diesel at Rs. 87.7 per litre.
• A sustained crude price spike would force the government to either pass on the increase to consumers, burdening household budgets, or absorb the cost itself through higher borrowings, eventually leading to higher taxes.
• Impact on Inflation
  • During the high oil price years (2011-12 to 2013-14), WPI inflation ranged between 5-9%, while retail inflation hovered around 9-10%.
  • When crude prices crashed (2015-16), WPI inflation turned negative at -3.65%, providing significant relief.
  • In 2021-22, when crude prices rebounded to $78 per barrel, WPI inflation surged to 13%.
  • If crude remains near $100 per barrel, India could witness a renewed surge in inflationary pressures, particularly affecting transport, food, and energy costs.

Impact on Economic Growth

• Higher crude oil prices have historically been detrimental to India's GDP growth. Conversely, lower prices have supported faster economic expansion.
• Growth Trends

• During 2015-16 and 2016-17, when crude was in the mid $40s per barrel, India grew at 8% and above.
• The Covid year (2020-21) saw a contraction of -5.78%, partly due to pandemic disruptions.

• Higher oil prices raise input costs for industries, reduce consumer disposable income, and dampen private consumption, all of which slow down economic growth.

Impact on Trade Balance, Forex, and Exchange Rate

• India's heavy dependence on crude oil imports means that higher crude prices worsen the trade deficit. A larger trade deficit must be offset by:

• Surpluses on other accounts of the Balance of Payments, such as services exports and foreign investments.
• Depreciation of the rupee against the dollar.
• Drawdown of forex reserves.

• Historical Patterns

• India's trade deficit has consistently widened during periods of high crude oil prices.
• The rupee has appreciated against the dollar only in two of the past 15 years, 2016-17 and 2020-21, both years when crude prices were below $50 per barrel.
• The sharp depreciation of the rupee in the past year reflects weaknesses in the trade balance that have not been offset by surpluses on other accounts.

Impact on Government Finances

• Higher crude oil prices typically worsen the government's fiscal deficit, the gap between government expenses and earnings. The government often resorts to additional borrowings to cover this gap.
• Key Concerns
  • Even during years of low oil prices, the government registered higher fiscal deficits, partly due to Covid-era expenses.
  • A sustained $100 per barrel crude price would likely cause significant fiscal strain, forcing the government to either raise taxes, cut subsidies, or borrow more.

Policy Responses and Way Forward

• To mitigate the impact of high crude oil prices, India needs a multi-pronged strategy:
• Short-Term Measures
  • Strategic Petroleum Reserves: Drawing down strategic reserves during price spikes.
  • Diversifying Crude Sources: Reducing dependence on West Asia by sourcing oil from Russia, the US, and other regions.
  • Calibrated Fuel Pricing: Balancing the burden between consumers and the government.
  • Forex Interventions: RBI measures to stabilise the rupee.
• Long-Term Strategy
  • Accelerating Renewable Energy Transition: Expanding solar, wind, and green hydrogen capacity.
  • Promoting Electric Vehicles (EVs): Reducing crude oil dependence in the transport sector.
  • Boosting Domestic Oil and Gas Production: Enhancing exploration and production activities.
  • Energy Efficiency Measures: Reducing overall energy consumption through technology and policy.
  • Coal Gasification and Alternative Fuels: Supporting initiatives like the recently approved coal gasification scheme.

Context

• In the 21st century, global power is no longer determined only by military alliances or territorial control; it is increasingly shaped by supply chains, technology ecosystems, trade routes, and access to critical minerals.
• Economic instruments such as tariffs, export controls, and sanctions now function as strategic weapons.
• In this evolving world order, nations compete through production networks, infrastructure, and technological leadership.
• For India, this transformation presents both historic opportunities and significant challenges as it seeks to strengthen its role in the global economy while preserving its strategic autonomy.

The Old Globalisation Model and New Economic Diplomacy

• Collapse of the Old Globalisation Model
  • The earlier belief that globalisation naturally promoted cooperation and shared prosperity has weakened.
  • Nations now use economic relationships as instruments of pressure and influence. Export controls, supply-chain restrictions, and economic sanctions have become tools of strategic competition.
  • China’s restrictions on rare earth exports and the tariff policies adopted by the United States demonstrate how easily trade can be weaponised.
  • As a result, economic diplomacy has become inseparable from national security.
  • Prosperity and geopolitical influence are now deeply interconnected, making economic resilience a key priority for all major powers.
• Rise of Economic Statecraft
  • Modern geopolitics increasingly revolves around economic capabilities rather than military strength alone.
  • Semiconductor alliances, energy partnerships, and technology cooperation now resemble traditional defence pacts.
  • Countries capable of controlling production networks and technological ecosystems possess significant strategic advantages.
  • This shift has created a new global environment where infrastructure, industrial capacity, and regulatory systems are as important as military alliances.
  • Economic power has therefore become one of the primary organising principles of international politics.

India’s Emerging Strategic Importance

• Structural Advantages of India
  • India’s large market, political stability, and growing workforce make it an attractive destination for investment and production.
  • A country once viewed mainly as a difficult but promising market is now seen as a reliable and essential partner in a diversified global economy.
  • Three major developments explain this transformation:
    • Digitisation, infrastructure expansion, and deregulation have improved efficiency and reduced transaction costs.
    • Geopolitical tensions surrounding China have increased demand for alternative production ecosystems.
    • India now treats trade agreements and technology partnerships as central tools of foreign policy and statecraft.
• Economic Security and Strategic Partnerships
  • Partnerships involving semiconductors, critical minerals, digital infrastructure, and defence-industrial cooperation are no longer purely commercial arrangements; they are strategic investments in resilience and influence.
  • In this new order, technological and industrial leadership complements military strength.
  • Global influence now flows through innovation, manufacturing capacity, and control over strategic supply chains.

Challenges in the New Global Order

• Risks of Overdependence
  • Excessive dependence on a single nation for technology, minerals, or markets can expose countries to political and economic pressure.
  • India therefore seeks diversified partnerships to protect its autonomy and flexibility.
  • The strategy of maintaining multiple economic relationships allows India to avoid overreliance on any single power bloc while continuing to benefit from global integration.
• Domestic Reforms and Institutional Strength
  • To become a reliable hub in global supply chains, India must continue improving logistics, workforce skills, infrastructure, and regulatory transparency. Leadership in emerging technologies also requires investment in research, innovation, and intellectual property.
  • At the same time, India’s global credibility depends on the strength of its democratic institutions and social cohesion.
  • Sustainable economic growth requires political stability, institutional trust, and effective governance.

The Path Forward for India

• Shift from Multilateralism to Flexible Alliances
  • The global trading system is moving away from traditional multilateralism toward flexible bilateral and regional partnerships shaped by strategic interests.
  • Universal frameworks based on broad consensus are weakening under geopolitical rivalry and domestic political pressures.
  • For India, this transition creates opportunities for a more agile and interest-driven diplomacy.
  • India can build partnerships across regions and sectors while protecting its long-term national interests.
• Opportunity and Responsibility
  • The world is actively searching for diversified production centres, trusted digital ecosystems, and stable democratic partners.
  • India is uniquely positioned to meet these demands if it continues strengthening competitiveness and credibility.
  • However, this opportunity is not automatic. It requires long-term planning, institutional steadiness, and the confidence to engage globally without compromising national interests.

Conclusion

• The fusion of economics and geopolitics has fundamentally reshaped the international order.
• Trade, technology, infrastructure, and supply chains have become the central arenas of global competition.
• In this changing environment, India occupies a strategically favourable position because of its scale, democratic stability, and reform-driven growth.
• India’s future will depend on balancing globalisation with self-reliance, deepening international engagement while preserving strategic autonomy.

Why in news?

More than 100 people died in powerful thunderstorms that struck Uttar Pradesh, with Prayagraj, Mirzapur, and Bhadohi among the worst-hit districts.

These storms, known as Andhi, are a common pre-monsoon weather phenomenon in northern India, typically occurring between April and May, sometimes extending into July. They are usually accompanied by dust storms, thunder, lightning, rain, and occasionally hail.

While many such storms are mild, stronger ones with wind speeds exceeding 90 kmph can cause severe destruction by uprooting trees, collapsing structures, toppling poles, and causing lightning-related deaths.

What’s in Today’s Article?

• Thunderstorms: Formation, Characteristics and Life Cycle
• Why This Thunderstorm Event Was More Destructive?
• Thunderstorm Forecasting: Successes and Limitations

Thunderstorms: Formation, Characteristics and Life Cycle

• A thunderstorm is a rain-bearing weather event accompanied by thunder. Since thunder is produced by lightning, all thunderstorms involve lightning.
• Thunderstorms are primarily the result of convection, which is the upward movement of warm, moist air in the atmosphere.
• Thunderstorms are most common during spring and summer, especially in the afternoon and evening, though they can occur throughout the year depending on atmospheric conditions.
• Key Conditions for Thunderstorm Formation
  • Three essential ingredients are required for the formation of a thunderstorm:
    • Moisture - Adequate moisture in the atmosphere provides the water vapour needed for cloud formation and precipitation.
    • Unstable Rising Air - The air must be unstable, meaning that once it starts rising, it continues to rise because it remains warmer and lighter than the surrounding air.
    • Lifting Mechanism - A trigger or “nudge” is needed to push warm air upward. This can be caused by: Surface heating by the sun; Hills or mountains; Collision of warm and cold air masses; Interaction between wet and dry air masses.
• How Does a Thunderstorm Form?
• The sun heats the Earth’s surface, warming the air above it.
• This warm air rises and carries moisture upward through convection. As the air rises, it cools, and the water vapour condenses to form clouds.
• As the cloud grows vertically into colder regions of the atmosphere, ice particles form.
• Collisions among these ice particles generate electrical charges, eventually leading to lightning.
• The rapid heating caused by lightning produces shock waves heard as thunder.
• Thunderstorm Life Cycle
  • Developing Stage
    • Marked by the formation of a cumulus cloud
    • Strong upward air movement (updraft) dominates
    • Cloud grows vertically into a towering cumulus
    • Little or no rainfall, though occasional lightning may occur
  • Mature Stage
    • Most intense and dangerous stage
    • Rain begins to fall, creating a downdraft
    • Updraft and downdraft coexist
    • Formation of a gust front due to spreading cool air
    • Associated with: Heavy rainfall; Hail; Frequent lightning; Strong winds; Tornadoes
  • Dissipating Stage
    • Downdraft becomes dominant
    • Warm moist air supply gets cut off
    • Rainfall gradually weakens
    • Lightning may still remain a threat

Why This Thunderstorm Event Was More Destructive?

• Unusually Powerful and Widespread Storms - The recent thunderstorms in Uttar Pradesh were far stronger than typical pre-monsoon events, with at least eight districts recording wind speeds above 100 kmph, reaching 130 kmph in some areas.
• Meteorological Conditions Behind the Event - Pre-monsoon thunderstorms in northern India are usually triggered by intense surface heating and moisture-laden winds.
  • This time, temperatures crossed 45°C, while strong southeasterly winds carried abundant moisture from the Bay of Bengal deep into northwestern Uttar Pradesh.
• Atmospheric Instability Triggered Severe Storms - At the same time, western disturbances brought cool, dry air in the upper atmosphere, while warm, moist air remained near the surface. This sharp contrast created intense atmospheric instability—a classic condition for severe thunderstorms.

Thunderstorm Forecasting: Successes and Limitations

• The IMD had forecast thunderstorm activity in advance, but underestimated the maximum wind speeds.
• Initial forecasts predicted winds up to 60 kmph, later revised to 70 kmph, while nowcasts projected 80–90 kmph. However, some districts recorded winds exceeding 100 kmph.
• According to the IMD, the overall forecast was timely and reasonably accurate.
• A strong observation network of around 2,400 weather stations in Uttar Pradesh has improved forecasting accuracy, though efforts are ongoing to better predict extreme intensity.
• Unlike cyclones, thunderstorms do not follow a clear directional path and occur as scattered, multiple events across wide areas.
• This makes large-scale evacuation impractical, limiting disaster response options mainly to early warnings and preparedness.

Why in news?

India is considering reducing the withholding tax on foreign investors’ earnings from Indian bonds from 20% to 5% to attract overseas capital inflows.

The move comes as India’s foreign exchange reserves have declined sharply amid the West Asia conflict and rising crude oil prices, increasing external economic pressure.

Lowering this tax is aimed at making Indian bonds more attractive to foreign investors and strengthening capital inflows as part of broader efforts to manage the external sector and conserve foreign exchange.

Reducing the withholding tax could increase foreign investors’ net returns, make Indian debt instruments more attractive, encourage greater capital inflows, and help support India’s foreign exchange reserves during global uncertainty.

What’s in Today’s Article?

• About Withholding Tax
• Evolution of India’s Withholding Tax Regime
• Withholding Tax Practices Across Countries
• FPI Investment in India’s Government Debt
• Why There Are Demands to Cut Withholding Tax?

About Withholding Tax

• Withholding tax (WHT) is a tax collected at the source of income.
• Instead of waiting for the taxpayer to pay at the end of the financial year, the payer deducts a portion of the income before transferring it to the recipient and deposits that amount directly with the government.
• It applies to income earned through employment, investments, royalties, and other sources, ensuring advance tax collection.

Evolution of India’s Withholding Tax Regime

• Expiry of the Concessional Rate - India had introduced a concessional 5% withholding tax on interest earned by foreign investors from investments in government securities and certain rupee-denominated bonds under Section 194LD of the Income Tax Act.
• Tax Rate Hike After July 2023 - The concessional regime expired in July 2023, after which the effective withholding tax for many foreign investors reverted to around 20%, making Indian debt relatively less attractive for global bond investors.
• Impact on Foreign Capital Inflows - The higher tax burden reduced the appeal of Indian debt instruments at a time when India was seeking stronger foreign capital inflows and inclusion in global bond indices.
• Historical Evolution in Other Areas
  • India’s withholding tax regime has changed significantly over time. In 1976, withholding tax on royalties paid to non-residents was 40%, while fees for technical services attracted 20%.
  • Between 1986 and 2005, the government reduced withholding tax on royalties and technical services to 10% to lower technology acquisition costs and encourage foreign collaboration.

Impact of Withholding Tax Cut on Foreign Portfolio Investors (FPIs)

• Higher Post-Tax Returns - Withholding tax reduces FPIs’ effective yields because tax is deducted before investment income is paid. Lowering the tax would improve post-tax returns and overall investment gains.
• Better Compounding and Reinvestment - A high withholding tax reduces the amount available for immediate reinvestment, weakening the benefits of long-term compounding. A lower tax rate would free up more capital for reinvestment.
• Improved Liquidity for Global Investors - For large international investors, withholding tax can temporarily lock up funds until tax credits or refunds are processed, creating short-term liquidity pressures. Lower taxes would ease this constraint.
• Reduced Compliance Burden - FPIs often face administrative difficulties in claiming tax relief under Double Taxation Avoidance Agreements (DTAAs). A lower withholding tax would reduce compliance costs and regulatory friction.
• Greater Market Attractiveness - By lowering transaction costs and improving risk-adjusted returns, a reduced withholding tax would make Indian financial markets more attractive to overseas investors.

Withholding Tax Practices Across Countries

• Most countries impose withholding tax on foreign investors, particularly on passive income such as interest, dividends, and royalties.
• The tax rate, coverage, and exemptions vary depending on the country, investor category, and the presence of DTAA.
  • United States: 30%
  • Germany: 26.4%
  • France: 25%
  • China: 10%
  • Hong Kong: No withholding tax
  • Singapore: No withholding tax

FPI Investment in India’s Government Debt

• FPI hold a relatively small share of India’s government debt market, though their participation has increased significantly following India’s inclusion in global bond indices such as the JPMorgan Government Bond Index-Emerging Market.
• The RBI has capped FPI investment in government securities at 6% of the outstanding stock.
• By March 2025, FPI investment in dated government securities had risen sharply by 43.2%, increasing from $30.6 billion to $43.9 billion year-on-year.

Why There Are Demands to Cut Withholding Tax?

• High Tax Reduces India’s Attractiveness - Analysts argue that India’s 20% withholding tax on interest income makes Indian debt less attractive compared to many peer countries, reducing foreign investor interest.
• Barrier to Global Bond Index Inclusion - High taxation and procedural hurdles delayed India’s inclusion in major global bond indices. Lower taxes and simpler processes could significantly boost foreign capital inflows.
• Potential for Large Capital Inflows - Experts estimate that greater tax clarity or exemptions could bring $45–50 billion in inflows over two years, while also attracting pension funds and endowment investors.
• Global Competition - Several countries do not tax bond investments, while countries like China offered special tax exemptions after bond index inclusion to attract foreign investors, making India comparatively less competitive.
• Recent FPI Debt Outflows - After the concessional withholding tax regime ended in 2023, foreign investors faced higher tax costs. As a result, India’s debt market has recently seen FPI outflows, indicating weaker investor sentiment.

Context:

• India’s recent economic performance has been strong, especially in the post-COVID-19 period, combining relatively high growth with macroeconomic stability in a manner achieved by few large economies.
• Real GDP growth reached 6.5% in FY 2024-25, making India one of the fastest-growing major economies globally.
• This performance has been supported by strong domestic demand, subdued inflation, gradual fiscal consolidation, and a broadly stable financial sector.
• However, while India has recorded meaningful productivity growth over recent decades, achieving the goal of Viksit Bharat by 2047 will require a faster pace of growth.
• This will depend not only on maintaining macroeconomic stability, but also on activating all engines of growth—labour, capital, and productivity—through deeper structural reforms.
• This article highlights why India’s journey to Viksit Bharat by 2047 requires a shift from growth-led expansion to productivity-led transformation.

Manufacturing: The Missing Link in India’s Structural Transformation

• The Economic Survey 2025-26 highlights that manufacturing must anchor India’s next phase of growth.
• However, the challenge is not merely expanding manufacturing, but making it more productive.
• Skewed Structural Transformation
  • India’s growth has been largely driven by the services sector, while manufacturing has not expanded enough to absorb labour or deliver broad-based productivity gains.
  • This creates an imbalanced pattern of structural transformation.
  • In successful development models, manufacturing acts as a bridge between low-productivity agriculture and high-productivity modern sectors.
  • It plays a critical role in sustaining growth and generating large-scale employment.
• Productivity and Firm Structure Challenges
  • Manufacturing productivity in India remains below its potential and lags behind international peers.
  • A major reason is the sector’s structure, marked by numerous small, low-productivity firms and too few mid-sized firms capable of scaling up.
  • Unlike India, successful East Asian economies developed strong medium and large manufacturing firms that boosted exports, productivity, and industrial growth.
  • The current structure leads to inefficient allocation of resources, with a large share of labour remaining stuck in low-productivity agriculture instead of moving to more productive sectors.
  • Despite significant investments, especially in infrastructure, efficiency gaps continue to persist in the manufacturing sector.

Zombie Firms and India’s Productivity Challenge

• India’s productivity growth is constrained by weak business dynamism. The process of “creative destruction,” where efficient firms replace inefficient ones, remains slow, limiting productivity gains.
• Small, low-productivity “zombie” firms continue operating despite being economically unviable. These firms lock up capital and labour that could otherwise be used more productively.
• Although zombie firms form a small share of total firms, they account for a disproportionately large share of total debt and assets, creating significant inefficiencies in resource allocation.
• A Persistent Structural Problem
  • Zombification is a gradual and persistent process rather than a temporary cyclical issue.
  • Firms begin deteriorating financially well before being classified as zombies and often remain trapped in distress.
  • The source of financing affects firm survival. Bank-financed firms are more likely to become zombie firms, stay distressed longer, and relapse after partial recovery, while equity-financed firms show better recovery prospects.
  • Financial and regulatory systems often keep inefficient firms alive instead of enabling their exit.
  • This crowds out credit for productive firms and weakens overall productivity growth.

Strategy for Viksit Bharat

• Manufacturing-Led Growth as the Core Strategy - India’s journey to Viksit Bharat requires a manufacturing-led growth strategy that focuses not only on expanding scale but also on improving efficiency and productivity.
• Strengthening Manufacturing Competitiveness - Expanding manufacturing will require deeper integration into global value chains, addressing trade barriers, and sustaining infrastructure investment to improve competitiveness.
• Boosting Productivity and Business Dynamism - Higher productivity will depend on stronger business dynamism, greater research and development, and an environment that enables efficient firms to grow.
• Enabling Exit of Inefficient Firms - Productivity gains also require allowing unproductive firms to exit so that capital and labour can be reallocated to more efficient uses.
• Reform Priorities - Key reforms should focus on simplifying regulations, easing labour constraints, strengthening insolvency mechanisms, improving credit allocation, and expanding access to finance.

Conclusion

• Achieving Viksit Bharat will depend not just on sustaining growth, but on raising productivity through stronger manufacturing, efficient resource allocation, structural reforms, and greater business dynamism.

About Euphrates River:

• It is Western Asia’s longest river.
• Course:
  • The river originates in the Armenian Highlands of southeastern Turkey.
  • It then flows through the countries of Syria and Iraq, where it meets with the Tigris River and finally drains into the Persian Gulf.
• The Euphrates River flows parallel to the Tigris River and along with all their tributaries, form the large Tigris-Euphrates River System.
• Ancient Mesopotamia, a part of what is often called the “Fertile Crescent,” occupied the land between the Tigris and Euphrates
• Some of the world’s oldest civilizations were established there thousands of years ago.
• One of the ancient world’s most important cities, Babylon, was built along the Euphrates.
• Often used as a boundary between various kingdoms, the Euphrates was the scene of battles during ancient times.
• The Euphrates receives most of its water from winter rains and snowfall in the mountains. The rest of the land that the Euphrates flows through is dry.

About Project Garud:

• It is a satellite platform programme launched by Hyderabad-based space startup Dhruva Space.
• It is focused on developing a flat-pack 500 kg-class satellite platform designed for scalable and high-volume manufacturing.
• It is positioned to bridge the gap between smaller experimental satellites and larger traditional systems.
• The platform is being developed as a standardised, production-oriented spacecraft capable of supporting multiple mission c
• The satellite architecture is aimed at applications across Telecommunications, National Security, Earth Observation, and emerging data-driven use cases.
• The platform introduces a flat-pack architecture that enables efficient launch stacking, faster system integration, and improved deployment timelines, making it suitable for large-scale satellite deployments.
• Dhruva Space will also establish the infrastructure, tooling, and industrial processes required for high-volume satellite manufacturing at scale.
• The manufacturing roadmap is designed to support production of up to two satellites per day, translating into an annual manufacturing capacity of nearly 500-600 satellites. 

About Rakchham Chitkul Wildlife Sanctuary:

• It is located in the Kinnaur district of Himachal Pradesh.
• The sanctuary is also referred to as `Sangla Wildlife Sanctuary`.
• The perilous Lamkhanga Pass is one of the many trekking routes that pass through this sanctuary.
  • This pass connects the Himachal Pradesh province of Kinnaur to the Uttarakhand region of Gangotri.
• Unlike the climate of other sanctuaries in Himachal Pradesh, the sanctuary is located in a dry zone; hence it does not experience monsoons.
• Vegetation: Sub-Alpine Forests, Dry Broadleaf and Coniferous Forests, Dry Temperate Forests and Dry Alpine Scrubs and Pastures.
• Flora: Rhododendrons, oak trees, pine trees, and medicinal herbs.
• Fauna: It is also home to various species of wildlife, such as snow leopards, Himalayan black bears, musk deer, and numerous bird species.

Key Facts about Himalayan Brown Bear:

• It is the largest mammal found in the high-altitude regions of the Himalayas.
• It is one of the most ancient brown bear lineages.
• Scientific Name: Ursus arctos isabellinus
• It is also known as the “Himalayan Red Bear” and the “Isabelline Bear”. It is known as Denmo in the Ladakhi
• It is believed by some that the bear’s ability to walk upright probably gave rise to the legend of the Yeti or “Abominable Snowman.”
• Distribution:
  • They are found in the northwestern and central Himalayas, including Pakistan, India, Nepal, the Tibetan Autonomous Region of China, and Bhutan.
  • They are found above the timberline, between 3,000 and 5,500 meters above sea level.
  • In India, this species exists in small isolated populations in the fragmented alpine and subalpine habitats of Jammu and Kashmir, Himachal Pradesh, and Uttarakhand.
• Features:
  • Males are larger than females, with an average length of 1.9 m and weight of 135 kg, in comparison to the female averages of 1.6 m and 70 kg.
  • It has thick fur, which is most often sandy or reddish-brown in colour.
  • Food: Omnivorous, eating grasses, roots, bulbs, and other plants, insects, and small mammals such as marmots, pikas, and voles.
  • They hibernate in dens during the winter.
• Conservation Status:
  • IUCN Red List: Critically Endangered