TARIFF WARS AND THE CHANGING GLOBAL AI LANDSCAPE
TOPIC: (GS2) INTERNATIONAL RELATIONS: THE HINDU
The IMF has approved a $2.4 billion fund release to Pakistan without a formal vote. In response, India plans to submit a dossier to FATF urging Pakistan’s re-inclusion in the ‘grey list’ due to its alleged misuse of global financial support.
Background of IMF Decision
- On May 9, 2025, the IMF Executive Board cleared the disbursement of $2.4 billion to Pakistan.
- This was not a new loan, but a part of an ongoing Extended Fund Facility (EFF) agreement approved in September 2024.
- Since it was a review-based disbursement, no formal vote was required — making it a unanimous approval by default.
- India, although part of the Board, abstained from supporting the approval, citing Pakistan’s misuse of funds in the past.
India’s Concerns and Actions
- India strongly opposed the IMF’s fund release, citing Pakistan’s “poor track record” in effectively using such financial aid.
- Indian officials, including Finance Minister Nirmala Sitharaman, reportedly tried to lobby support against the approval, but failed due to the non-voting nature of the process.
- India is preparing to send a dossier to the Financial Action Task Force (FATF) before its June plenary, aiming to push for Pakistan’s re-inclusion in the grey list.
- Additionally, India intends to lobby the World Bank to restrict future aid to Pakistan.
IMF’s Rationale for Approval
- Julie Kozack, IMF Communications Director, stated that the disbursement followed a successful first review of the programme conducted in March 2025.
- The review confirmed that Pakistan met all reform targets and showed progress on key policy measures.
- According to IMF policy, such technical reviews focus on whether the country is on track and meeting programme goals.
- Based on these findings, the IMF proceeded with the fund release.
India’s Concerns with Pakistan and FATF
- India has long accused Pakistan of financing cross-border terrorism and diverting international aid for non-developmental use.
- The FATF grey list includes countries under enhanced monitoring for anti-money laundering and counter-terrorism financing lapses.
- Pakistan was removed from the grey list in 2022, but India wants it re-listed based on new evidence.
WHAT IS IMF?
The International Monetary Fund (IMF) is a global financial institution set up in 1944 (at the Bretton Woods Conference) to promote global monetary cooperation, financial stability, international trade, and economic growth.
- It currently has 190+ member countries.
- Headquarters: Washington, D.C., USA
Quotas (Main Source of Funds)
- Every member country pays a quota when joining the IMF.
- The quota is based on the country’s economic size and capacity.
- Quotas are reviewed periodically and determine: Voting power, Access to IMF loans, Share in IMF’s resources
Special Drawing Rights (SDRs)
- Countries also hold SDRs, an international reserve asset created by the IMF.
- SDRs can be exchanged for freely usable currencies.
How IMF Helps Countries in Crisis
- Offers loans to countries facing balance of payments problems, currency crisis, or debt distress.
- Example: Countries like Pakistan, Sri Lanka, and Argentina recently received IMF help.
- Helps improve financial institutions, tax systems, central banking, etc.
- Monitors global economy and gives economic forecasts, policy advice, and warning signals.
Currencies in Which IMF Keeps Money
- The IMF deals mainly in five major currencies: US Dollar (USD), Euro (EUR), British Pound (GBP), Japanese Yen (JPY), Chinese Yuan (CNY)
SDRs (Special Drawing Rights)
- An artificial currency used in IMF transactions, based on a basket of the above five currencies.
Conclusion
The IMF’s decision highlights a gap between technical compliance and geopolitical realities. India’s push at FATF signals its continued focus on holding Pakistan accountable for alleged misuse of global financial aid.
RBI DIVIDEND TRANSFER TO THE GOVERNMENT OF INDIA
TOPIC: (GS3) ECONOMY: INDIAN EXPRESS
The Reserve Bank of India (RBI) has approved a dividend transfer of ₹2.69 lakh crore to the central government for FY 2024-25. This payout exceeds the previous year’s amount and is likely to ease fiscal pressure on the government.
Dividend Transfer
- On May 17, 2025, the RBI Central Board approved transferring a surplus of ₹2.68 lakh crore to the Union government.
- It’s like RBI giving its extra income to the government after keeping enough for emergencies, just like how a company gives profit to its owner.
- This amount is 27% higher than last year’s dividend of ₹2.10 lakh crore.
- The dividend is based on the Revised Economic Capital Framework (ECF), updated and approved by the Board on May 15, 2025.
Revised Economic Capital Framework (ECF)
The Revised Economic Capital Framework (ECF) is a system used by the Reserve Bank of India (RBI) to determine the optimal level of capital or reserves the central bank should maintain. It balances financial stability, risk management, and surplus transfer to the government.
Increase in Contingent Risk Buffer (CRB)
- The Contingent Risk Buffer (CRB) has been raised to 7.5% of RBI’s balance sheet to safeguard against future financial risks.
- Between 2018-19 and 2021-22, the CRB was kept at 5.5% to support the economy during COVID-19.
- It was gradually increased to 6% in FY 2022-23, 6.5% in FY 2023-24, and now to 7.5% for FY 2024-25.
CONTINGENT RISK BUFFER (CRB)
The Contingent Risk Buffer (CRB) is a portion of the Reserve Bank of India’s (RBI’s) capital set aside as a safety cushion to cover unexpected financial risks or economic shocks.
- It is part of the Revised Economic Capital Framework (ECF).
- CRB is used to deal with contingent risks like:
- Sudden currency devaluation
- Financial market instability
- Global economic crises
- Unexpected banking sector stress
- It ensures the RBI remains financially strong and can perform its monetary and regulatory functions even in crises.
- The CRB is expressed as a percentage of the RBI’s balance sheet.
- For example, it was raised to 7.5% in 2025 to strengthen financial resilience.
- A higher CRB means lower surplus is available for transfer to the government.
In simple terms:
CRB is RBI’s emergency fund — money kept aside to deal with financial trouble or crisis, just like savings for bad times.
Implications for the Government
- The Union Budget 2025-26 had expected ₹2.56 lakh crore from RBI and other financial institutions.
- With this higher-than-expected transfer, the fiscal deficit may reduce by 20 basis points to 4.2% of GDP.
- The dividend was supported by higher foreign exchange earnings, strong dollar sales, and rising interest income.
Market Response
- Some market analysts were disappointed as the dividend was lower than the expected ₹3 lakh crore, mainly due to the increase in the CRB.
- This may lead to short-term profit booking in the bond markets.
RBI’s Earnings
Interest Income
- Government Securities: RBI holds a large stock of government bonds and earns interest from them.
- Loans to Banks: Interest earned on funds lent to banks under various facilities like repo operations.
Foreign Exchange Operations
- RBI manages India’s foreign exchange reserves and earns from:
- Interest on foreign assets (like US treasury bonds).
- Buying and selling foreign currency, making gains from currency movements.
Fees and Charges
- RBI charges fees for services like banking for the government, clearing settlements, etc.
Dividend from Subsidiaries
- RBI earns dividends from institutions it partly owns, such as:
- National Housing Bank (NHB)
- Deposit Insurance and Credit Guarantee Corporation (DICGC)
Currency Issuance
- The RBI prints currency and earns seigniorage – the difference between the cost of printing money and its face value.
Investment Income
- RBI invests in various securities and earns income on these investments.
Conclusion
RBI’s higher dividend will strengthen the government’s fiscal position. However, its cautious move to build financial buffers reflects a balanced approach between fiscal support and risk management.
INTROSPECTING COUNTER-TERRORISM AFTER OPERATION SINDOOR”
TOPIC: (GS3) SEQURITY: THE HINDU
On April 22, 2024, a terrorist attack occurred in Pahalgam (J&K), believed to be orchestrated by Pakistan-backed militants. In response, India carried out Operation Sindoor on May 7, showcasing its military strength. The operation raised questions on the long-term effectiveness of such kinetic strikes in countering terrorism in Jammu & Kashmir (J&K).
the Terrorism Landscape in J&K
- Terrorism in J&K is not solely external; it’s shaped by internal issues such as:
- Alienation and identity crisis.
- Political neglect and lack of representation.
- Historical grievances since 1989.
- Pakistan’s role has been crucial in fueling unrest, especially by sending in foreign terrorists from the mid-1990s onwards.
Trends and Progress in Security
- As per South Asia Terrorism Portal (SATP): Terror-related deaths have dropped from 4,000 (2001) to 127 (2024).
- This drop is attributed to: A stronger security network. Public outreach by the government. Declining ability of Pakistan to maintain a full-scale proxy war.
Limitations of Military Deterrence
- Despite major operations like: Surgical Strikes (2016), Balakot Airstrike (2019), and Operation Sindoor (2024),
terror-related incidents have not decreased substantially. - Example: Terror deaths increased from 175 (2015) to 267 (2016) after the 2016 strikes.
- Pakistan’s narrative claims a “victory” in the 2024 standoff, emboldening its military nationalism.
Current Challenges on the Ground
- Local terrorist participation has declined since the Burhan Wani era, but foreign terrorists now use advanced tech and are still active.
- Intelligence suggests some locals still support or coordinate with foreign fighters.
- Gaps in security deployment, especially after troops were redirected to Galwan, have been exploited by new outfits like: The Resistance Front (TRF), People’s Anti-Fascist Front (PAFF), and Kashmir Tigers.
Need for a Holistic Strategy
- Operation Sindoor proves India’s capability in non-contact warfare, but military action alone isn’t enough.
- Local public unity after the Pahalgam attack shows an opportunity to build trust.
- Counterproductive actions like mass arrests or home demolitions may hurt public sentiment.
Way Forward
- Counter-terrorism must be multi-dimensional:
- Political inclusion and regular engagement.
- Economic opportunities and youth empowerment.
- Community integration and restoring public faith in governance.
- The guiding philosophy should be “People are the Centre of Gravity” in conflict resolution.
CONCLUSION:
A long-term solution to terrorism in Jammu & Kashmir requires more than military strength; it demands addressing internal grievances through political, social, and economic measures. Only a people-centric, multidimensional approach can ensure lasting peace and deterrence.
GST COUNCIL MEETING ON RATE RATIONALISATION AND COMPENSATION CESS
TOPIC: (GS3) ECONOMY: INDIAN EXPRESS
The GST Council is expected to meet soon to discuss simplifying GST slabs, rationalising tax rates on many items, and deciding the future of the compensation cess beyond March 2026.
About GST Council
- The GST Council is a constitutional body chaired by the Union Finance Minister, including finance ministers of all states and union territories.
- It is responsible for making recommendations on GST rates, rules, and tax structure to ensure smooth GST implementation across India.
GST COUNCIL
Constitutional Basis:
- Established under Article 279A of the Indian Constitution (101st Amendment, 2016).
Composition:
- Chaired by Union Finance Minister.
- Includes finance ministers of all states and union territories with legislatures.
Functions:
- Recommend GST rates on goods and services.
- Decide on exemptions, thresholds, and rules for GST implementation.
- Resolve disputes between states and Centre regarding GST.
Decision-Making:
- Decisions made by majority vote with Centre having one-third weightage and states two-thirds.
Issues for Upcoming Meeting
Rate Rationalisation and Simplification
- The Council will review proposals to adjust GST rates on as many as 148 goods and services to make the tax structure simpler and more uniform.
- Earlier discussions on reducing GST on health and insurance premiums were deferred due to concerns over potential revenue loss to states and awaited input from the insurance regulator (IRDAI).
Compensation Cess Future
- The compensation cess is a tax imposed on luxury and sin goods to compensate states for any revenue losses after GST implementation.
- Currently, this cess is used mainly to repay loans taken during the COVID-19 pandemic to cover state GST revenue shortfalls.
- The Group of Ministers (GoM) led by Minister Pankaj Chaudhary is examining options to extend the cess or find alternative ways to share revenue between the Centre and states after March 2026.
Group of Ministers (GoM) Role
- The GoM on rate rationalisation requested more time to analyze and discuss the proposed changes.
- Similarly, the GoM on compensation cess has been granted an extension to finalize their recommendations.
Significance
- Rationalising GST rates aims to reduce complexity, improve compliance, and boost economic activity.
- Clarifying the future of the compensation cess is crucial for state finances and fiscal federalism.
- The GST Council’s decisions will impact tax revenue distribution and overall economic recovery.
SUPREME COURT JUDGMENT ON DUAL TAXATION OF BROADCASTING SERVICES:
TOPIC: (GS2) INDIAN POLITY: THE HINDU
The Supreme Court recently ruled that both the Central government and State governments can impose separate taxes on broadcasting services for entertainment. This judgment clarifies the legality of dual taxation under different laws.
Supreme Court Ruling on Dual Taxation of Broadcasting Services
- The case involved whether broadcasting services for entertainment could be taxed separately by the Centre and States.
- The Centre imposes service tax under the Finance Act, 1994, while States levy entertainment tax on providers of entertainment services like cable operators.
- The question was if both these taxes on broadcasting services violated the principle against double taxation.
Observations by the Court:
- The Supreme Court, in a judgment dated May 22, upheld that dual taxation in this context is legally valid.
- Broadcasting is treated as a “service” under the Union List, and service tax is within the Centre’s jurisdiction (Entry 97).
- Entertainment, however, falls under the State List (Entry 62), allowing States to impose entertainment tax on activities providing entertainment to viewers.
- There is no overlapping or double taxation because the taxes target different aspects of the same activity under different legislations.
Legal Interpretation:
- Justice B.V. Nagarathna explained that taxing different dimensions of broadcasting by separate authorities does not amount to unconstitutional double taxation.
- The term “entertainment” has been interpreted broadly by the Court to include various modern forms of entertainment delivered through technology like TV, mobile phones, smartwatches, etc.
- Entertainment tax falls under the category of “luxury” in the State List, justifying State-level taxation.
Significance of the Judgment:
- It confirms the authority of both Central and State governments to tax broadcasting services separately.
- Provides clarity on the legal framework for taxing emerging digital entertainment platforms.
- Supports the constitutional division of powers between Centre and States regarding taxation.
- Helps broadcasters and service providers understand their tax liabilities clearly.
DUAL TAXATION AND ITS CONSTITUTIONAL PROVISIONS
What is Dual Taxation?
- Dual taxation occurs when two different authorities impose taxes on the same activity or transaction.
- It often raises concerns about fairness and the risk of “double taxation,” where a taxpayer pays tax twice for the same service or product.
- However, dual taxation can be valid if different aspects of the activity are taxed by constitutionally separate authorities.
Constitutional Basis for Taxation in India:
- India’s Constitution divides taxation powers between the Union (Central Government) and States through three lists in Seventh Schedule:
- Union List (List I) – Taxes that only Parliament can impose.
- State List (List II) – Taxes that only State legislatures can impose.
- Concurrent List (List III) – Both can legislate on these subjects.
Relevant Entries in the Seventh Schedule:
- Entry 97 of the Union List:
- Empowers the Union Government to levy service tax on services, including broadcasting as a service.
- Entry 62 of the State List:
- Empowers the States to levy entertainment tax, which includes taxing activities providing entertainment to the public or subscribers.
Conclusion:
This verdict affirms the constitutional provision allowing simultaneous taxation by Centre and States on different aspects of broadcasting services, ensuring clarity in the tax regime related to entertainment services.
NATIONAL CENTRE FOR POLAR AND OCEAN RESEARCH (NCPOR)
TOPIC: (GS3) SCIENCE AND TECHNOLOGY: PIB
The Union Minister of Earth Sciences recently inaugurated two new buildings — Polar Bhavan and Sagar Bhavan — at the National Centre for Polar and Ocean Research (NCPOR), Goa, enhancing India’s capabilities in polar and ocean research.
National Centre for Polar and Ocean Research (NCPOR)
- Established in 1998 as an autonomous research institute under the Ministry of Earth Sciences.
- Earlier known as the National Centre for Antarctic and Ocean Research (NCAOR).
- Located in Vasco da Gama, Goa.
- Functions as the main agency for planning and carrying out scientific expeditions in polar regions (Antarctic, Arctic) and the ocean, as well as the Himalayas.
- Coordinates research activities and logistics in polar and ocean science.
- Handles important strategic projects like mapping India’s Exclusive Economic Zone (EEZ), continental shelf surveys, and the Deep Ocean Mission.
- Guided by a Research Advisory Committee (RAC) to provide scientific advice.
Polar Bhavan
- Largest building on the NCPOR campus, covering 11,378 sq. meters.
- Constructed at a cost of around ₹55 crore.
- Equipped with modern laboratories, 55 scientist rooms, conference halls, and a library.
- Features the Science on Sphere (SOS) — a 3D visualization platform for earth systems.
- Will house India’s first Polar and Ocean Museum to promote public awareness about polar and ocean research.
Sagar Bhavan
- Covers 1,772 sq. meters and built at a cost of approximately ₹13 crore.
- Contains special labs, including:
- Two ice core labs maintained at -30°C for studying climate history.
- Storage units at +4°C to preserve sediment and biological samples.
- A Class 1000 metal-free clean room for sensitive analysis of trace metals and isotopes.
India’s Polar Presence and Policy
NCPOR supports India’s research stations in:
- Antarctica: Maitri and Bharati stations.
- Arctic: Himadri station.
- Himalayas: Himansh station.
India’s engagement in the polar regions is backed by:
- The India Arctic Policy (2022).
- The Indian Antarctic Act (2022).
These frameworks ensure that India’s polar research is science-driven and follows environmental protection standards in line with international agreements.
CHAGOS ARCHIPELAGO
TOPIC: (GS3) ENVIRONMENT: THE HINDU
India recently welcomed the United Kingdom’s decision to transfer sovereignty of the Chagos Archipelago, including Diego Garcia, back to Mauritius under a historic agreement.
About Chagos Archipelago
- The Chagos Archipelago is a group of islands located in the central Indian Ocean.
- It lies about 1,600 km (1,000 miles) south of the southern tip of India.
- These islands were established as a British Overseas Territory on November 8, 1965, known as the British Indian Ocean Territory (BIOT).
- Major islands include Diego Garcia atoll, Danger Island, Egmont Islands, Eagle Islands, Nelsons Island, Peros Banhos atoll, Three Brothers Islands, and Solomon Islands.
- Diego Garcia is the largest island (around 30 sq. km) and hosts a strategic US military base.
- The terrain is mostly flat and low-lying, with no rivers or lakes.
- The climate is tropical marine with high temperature and humidity, moderated by constant trade winds.
History of Chagos Islands
- The first inhabitants were enslaved people brought from Madagascar and Mozambique by French colonizers to work on coconut plantations.
- Over time, these people freed themselves and formed the Chagossian community, with their own distinct culture and language.
- In 1965, just before Mauritius’s independence, the British convinced Mauritian leaders to give up their claim over Chagos.
- In 1966, the islands were separated to form the British Indian Ocean Territory (BIOT), denying any local claim to independence.
- The native Chagossians were forcibly removed, most relocating to Mauritius.
- The UK agreed with the US to use Diego Garcia as a military base to secure its interests in the Indian Ocean.
- Mauritius has continuously claimed sovereignty over the islands since its independence in 1968.
- In 2019, the International Court of Justice (ICJ) ruled that the UK has no legal right to govern the islands and urged it to return them to Mauritius.
Strategic Importance
- Diego Garcia is a critical military base for the US and its allies, offering strategic control over the Indian Ocean region.
- The archipelago’s location is important for maritime security and surveillance.
Conclusion
The recent UK decision to hand over sovereignty of the Chagos Islands to Mauritius marks a major diplomatic development, supported by international law and welcomed by India. It resolves a longstanding territorial dispute and acknowledges the rights of Mauritius and the displaced Chagossian people.
SELF RELIANT INDIA (SRI) FUND SCHEME
TOPIC: (GS3) ECONOMY: THE HINDU
The Self-Reliant India (SRI) Fund scheme has invested about ₹10,979 crore in 577 MSMEs as of March 2025, supporting the growth of micro, small, and medium enterprises (MSMEs) across India.
About Self Reliant India (SRI) Fund Scheme
- The SRI Fund is designed to provide equity funding of ₹50,000 crore to MSMEs that have strong potential for growth and scaling up.
- Out of the total ₹50,000 crore, ₹10,000 crore comes from the Government of India, while ₹40,000 crore is raised through private equity and venture capital funds.
- The fund follows a mother-fund and daughter-fund model to channel investments efficiently into MSMEs.
- It is managed and implemented by NSIC Venture Capital Fund Limited (NVCFL), a Category II Alternative Investment Fund (AIF) registered with SEBI.
Objectives and Focus
- To provide MSMEs with equity or quasi-equity finance for expansion and development.
- To help MSMEs list on stock exchanges, enhancing their access to capital markets.
- To boost MSME growth, which will stimulate economic activity and generate jobs.
- To support MSMEs with potential to grow beyond their current scale and become national or international leaders.
- To promote MSMEs producing vital goods, technologies, and services contributing to India’s self-reliance.
Operational Mechanism
- The SRI Fund invests capital in daughter funds managed by various private equity or venture capital players.
- These daughter funds, in turn, invest at least five times the amount received from the SRI Fund into eligible MSMEs.
- MSMEs eligible for investment are those registered under the Micro, Small & Medium Enterprises Development Act, 2006.
Significance
- The scheme encourages MSMEs to grow sustainably with financial backing.
- Helps transform MSMEs into larger competitive enterprises on national and global stages.
- Supports government’s vision of a self-reliant India by fostering innovation and production within the country.