U.S. TARIFFS ON INDIAN EXPORTS – WHICH SECTORS ARE WORST HIT?
TOPIC: (GS2) INTERNATIONAL RELATIONS: THE HINDU
The U.S. has imposed steep tariffs, up to 50% on imports from India, effective August 27, 2025. This has triggered concern as several labour-intensive sectors such as shrimp, textiles, jewellery, and carpets face sharp demand drops and production cuts.
Background
- India is a major exporter of goods like shrimp, textiles, gems & jewellery to the U.S.Tariffs have been raised drastically in many cases rising from single digits to above 50–60%.
- The impact varies across sectors depending on:
- Share of U.S. in that sector’s exports,
- Size of exports in absolute terms,
- Tariff level imposed.
Sectors Facing Severe Impact
- Shrimp
- Exports: $2.4 billion to U.S. (32% of India’s total shrimp exports). Tariff jumped from 10% → 60%.
- Andhra Pradesh producers report a 20% price fall and shrinking demand.
- Diamonds, Gold & Jewellery
- Exports: $10 billion (40% of sector exports). Tariffs increased from 2.1% → 52.1%.
- Surat’s diamond industry (12 lakh jobs) witnessing production cuts and layoffs.
- Textiles & Apparel
- Exports: $10.8 billion; apparel alone $5.4 billion. U.S. share: 35% of India’s apparel exports. Tariff rose from 13.9% → 63.9%.
- Reports of order cancellations, frozen expansions, and workforce downsizing in Tiruppur, Noida, Ludhiana, and Bengaluru.
- Carpets
- Exports: $1.2 billion; 59% sent to U.S. Tariff rise: 2.9% → 52.9%.
- Exporters report major demand slump.
- Other Affected Areas
- Handicrafts, leather goods, footwear, furniture, basmati rice, spices, tea, pulses.
Sectors with Moderate Impact
- Organic Chemicals: $2.7 billion exports; tariffs up from 4% → 54%. Industry bodies seek relief.
- Metals (Steel, Aluminium, Copper): $4.7 billion exports (17% share). Impact felt mostly by SMEs in Delhi-NCR and eastern hubs.
- Machinery & Mechanical Appliances: $6.7 billion exports (20% share). Demand likely to shrink.
Government Response
- Short-term: Multi-ministry plan to support exporters; RBI ready to assist with credit and liquidity measures.
- Medium-term: Diversifying export markets beyond U.S., leveraging FTAs.
- Long-term: Push for ‘Vocal for Local’ and reducing dependence on exports for growth.
Conclusion
The steep U.S. tariffs pose a serious challenge for India’s labour-intensive export sectors, threatening jobs and regional economies. While short-term relief is being planned, the situation underlines the need for India to diversify trade partners, strengthen domestic industries, and enhance competitiveness in global markets.
U.S. ENDS DUTY-FREE IMPORTS OF LOW-VALUE GOODS
TOPIC: (GS2) INTERNATIONAL RELATIONS: THE HINDU
The U.S. has scrapped the duty-free import exemption (de minimis rule) for goods under $800, effective August 29, 2025. This move will affect millions of low-value shipments, especially from China, and disrupt global e-commerce trade flows.
What Was the De Minimis Rule?
- Based on Section 321 of the 1930 Tariff Act.
- Initially designed for tourists to bring home souvenirs without tax.
- Later expanded as a trade facilitation measure to cut costs for businesses and consumers.
- In 2016, the exemption limit was raised from $200 to $800, covering a wider variety of products.
- By 2024, 1.36 billion shipments annually entered the U.S. duty-free under this scheme.
Why Did the U.S. Scrap It?
- Trade Deficit Concerns: To reduce the growing trade gap, especially with China (which accounted for over 50% of such imports).
- Counterfeit & Safety Issues: To prevent the inflow of fake, unsafe, or low-quality products.
- Level Playing Field: Domestic importers argued that low postal rates for developing countries unfairly hurt U.S. businesses.
- Revenue Loss: Huge rise in shipments meant lost tariff revenue; about 4 million parcels daily were entering duty-free.
- Political Context: Part of Trump administration’s larger protectionist trade agenda.
International Context
- Universal Postal Union Deal (2019): U.S. forced higher postal rates for exporters from developing nations.
- European Union Measures:
- Proposed a €2 handling fee for direct imports, and €0.5 warehouse fee.
- Scrapped the €150 duty-free limit.
- Aimed to curb unsafe goods and stop Chinese e-commerce giants from exploiting loopholes.
- In 2023, EU saw 4.6 billion low-value parcels, 90% from China.
Implications for Global Trade & Businesses
- Logistics Disruption: Postal and courier services face new customs checks and delays.
- Higher Costs: Consumers will pay more for imported low-cost items (toys, textiles, cosmetics, electronics).
- E-commerce Platforms Hit: Firms like Shein, Temu, AliExpress face reduced competitiveness.
- Shift in Supply Chains: Countries may diversify sourcing to avoid U.S. tariffs.
- Challenge to Multilateralism: Reflects weakening of WTO-led free trade order as major economies move to unilateral protectionist measures.
- Impact on Developing Countries: Exporters relying on small-value shipments may lose access to U.S. and EU markets.
Conclusion
The end of the de minimis duty-free rule by the U.S., followed by similar EU actions, signals a new phase of protectionism in global trade. While aimed at curbing trade imbalances and counterfeit imports, it risks raising consumer prices, hurting e-commerce businesses, and undermining the global free trade system.
GST REFORMS AND STATE REVENUE LOSS, SHOULD STATES BE COMPENSATED?
TOPIC: (GS3) ECONOMY: THE HINDU
Prime Minister recently announced next-generation GST reforms aimed at simplifying the tax structure by moving towards a two-rate system of 5% and 18%. This has raised concerns among States about possible revenue losses and the need for compensation.
Key Features of the Proposed GST Reforms
- Simplification of structure: from current four slabs to two major slabs (5% and 18%).
- Overall tax rate reduction: average GST incidence to fall from ~11.5% to ~10%.
- Retention of high slab: “sin goods” and luxury items to continue attracting ~40% tax.
- Ease of doing business: reforms expected to improve compliance and attract investment.
Revenue Implications
- Short-term dip: Estimated loss of ₹60,000–1,00,000 crore annually (~0.2–0.3% of GDP).
- Offsetting factors:
- Higher taxes on luxury and sin goods.
- Boost in consumption due to lower prices.
- Better compliance and reduced leakages.
- 18% slab safeguarded: About 70% of GST revenue comes from this slab; hence, minimal direct impact.
Unequal Impact on States
- Industrial States hit harder: Maharashtra, Karnataka, Tamil Nadu may face bigger short-term revenue loss due to high consumption of durables and services.
- Agrarian States less affected: Bihar, UP, NE States have lower dependency on high-taxed goods, hence revenue impact is limited.
- Unequal distribution: Larger manufacturing States derive more GST, while smaller States get less.
Debate on State Compensation
- Centre’s view:
- Five-year compensation period (2017–22) already completed.
- States must strengthen tax systems, widen base, and attract investment.
- Alternative views:
- Some mechanism needed for unevenly affected States.
- Options include using the Consolidated Fund of India, creating a contingency pool, or temporary cesses.
- Global practice: Many countries initially supported States through such mechanisms during GST transition.
Challenges & Way Forward
- Political consensus: GST Council decisions mostly by consensus; reforms likely to pass.
- State concerns: Larger States may seek transitional support before revenues stabilize.
- Long-term benefits: Simplified GST expected to reduce costs, enhance formalisation, and make India more competitive.
Conclusion
GST reform is a major step toward simplifying India’s tax regime and enhancing ease of business. While some States may face short-term revenue stress, reforms are expected to boost compliance and consumption, ensuring long-term fiscal stability. A balanced mechanism for transitional support can address State concerns without undermining reform momentum.
INDIA’S DEMOGRAPHIC DIVIDEND – FROM OPPORTUNITY TO TIME BOMB?
TOPIC: (GS3) ECONOMY: THE HINDU
Experts have warned that India’s much-celebrated demographic dividend could turn into a demographic crisis due to a growing mismatch between education, skills, and industry needs. Rising automation, outdated curricula, and low employability among graduates make this a critical policy challenge.
India’s Demographic Dividend: Promise vs Risk
- India has 800+ million youth under 35 years, considered an engine for growth.
- But, if skills do not match jobs, this dividend could become a liability.
Key Challenges
- Education–Skill Gap: Outdated curricula prepare students for jobs that no longer exist. AI & automation: 70% of jobs impacted globally; 30% tasks automated.
- Low Employability of Graduates: 40–50% engineering graduates remain jobless despite degrees. Graduate Skills Index 2025: only 43% graduates job-ready.
- Early Skill Mismatch in Schools: 93% students (Class 8–12) aware of only 7 careers (doctor, engineer, lawyer, etc.). In reality, over 20,000 career paths exist.
- Technology Gap: Smartphones are common but teaching remains exam-centric. EdTech platforms focus on rote test prep rather than career discovery.
Implications if Not Addressed
- Unemployable youth could turn into a social and political flashpoint.
- Historical precedent: 1990 Mandal Commission protests show risks of youth unrest.
- Rising unemployment could derail India’s vision of Viksit Bharat @ 2047.
The Way Forward
- Curriculum Reform: Update school & university syllabi in real-time with industry needs.
- Skill Alignment: Shift focus to upskilling, reskilling, cross-skilling for AI-era jobs.
- Career Guidance: Institutionalize career counselling in schools (Mahila Sabhas / Panchayat models for rural youth).
- Public–Private Partnership: Integrate EdTech, industry, and academia to co-create skilling programs.
- National Framework: Build a unified Education–Skill–Employment Ecosystem linking school to industry pathways.
- Localised Skill Hubs: Strengthen regional skilling centres tied to local job markets.
DEMOGRAPHIC DIVIDEND
Demographic Dividend refers to the economic growth potential that arises when a country has a large working-age population (15–64 years) relative to its dependent population (children and elderly).
Key Points:
- It is the boost in economic productivity that can occur when there are more people in the workforce compared to dependents.
- A higher working-age population can lead to more savings, investment, and innovation if effectively employed.
- To benefit from it, countries need education, skill development, healthcare, and job opportunities.
- This window is temporary; as the population ages, the advantage declines, potentially creating a “demographic burden” if not managed well.
Example: India is currently said to have a demographic dividend because around 65% of its population is in the working-age group, offering potential for economic growth if jobs and skills are developed.
Conclusion
India’s demographic dividend is at a crossroads. If reforms remain slow, the youth bulge could become a demographic time bomb, with rising educated unemployment and social unrest. But with coherent reforms in education, skilling, and employment policies, India can transform its youth population into the strongest pillar of its Viksit Bharat 2047 vision.
INDIA–EURASIAN ECONOMIC UNION (EAEU) FREE TRADE AGREEMENT (FTA) NEGOTIATIONS
TOPIC: (GS2) INTERNATIONAL RELATIONS: THE HINDU
India and the Eurasian Economic Union (EAEU) have agreed on Terms of Reference (ToR) to start negotiations for a Free Trade Agreement. This comes amid stalled trade talks with the US and rising American tariff threats on Indian goods.
About Eurasian Economic Union (EAEU)
- Nature: Regional economic integration organization with international legal personality.
- Established: Treaty on the Eurasian Economic Union, effective 2015.
- Members: Armenia, Belarus, Kazakhstan, Kyrgyzstan, Russia.
- Headquarters: Moscow, Russia.
Objectives:
- Free movement of goods, services, capital, and labor.
- Coordinate economic policies, modernize economies, enhance competitiveness.
- Promote stable growth and improve living standards.
Significance of EAEU FTA for India
- Market Access: Opens USD 6.5 trillion market for Indian exports, including textiles, pharmaceuticals, engineering goods, and electronics.
- Trade Diversification: Reduces dependence on US and EU markets amid tariff threats.
- Energy Security: Access to energy resources; Russia supplies 35–40% of India’s crude oil imports.
- Connectivity Boost: Complements International North-South Transport Corridor (INSTC) and Chennai–Vladivostok corridor, reducing transit time and logistics costs.
- MSME Opportunities: Expands prospects for small and medium enterprises in exports and technology collaborations.
Challenges in India–EAEU Engagement
- High Trade Deficit with Russia: Surged from USD 6.6 billion (2021) to USD 58.9 billion (2024–25), mainly due to hydrocarbon imports.
- Geopolitical Sensitivity: Trade with Russia may strain India’s relations with NATO and Western allies; US and EU sanctions complicate dealings.
- Domestic Industry Concerns: Cheap imports could threaten Indian manufacturers; safeguards may be needed.
- Low FTA Utilization: Currently around 25%, below global averages (70–80%).
- Non-Tariff Barriers: Complex customs procedures, bureaucratic delays, and regulatory hurdles.
Strategies to Strengthen Engagement
- Economic Cooperation Program: Implement 2025–2030 program with Russia; extend to all EAEU members covering energy, agriculture, industry, education, and culture.
- Diversify Export Portfolio: Focus on pharmaceuticals, textiles, machinery, services, and reduce hydrocarbon dependence.
- Financial Mechanisms: Promote local currency settlements (rupee-ruble) with sufficient liquidity.
- Multilateral Economic Outreach: Leverage BRICS, RIC (Russia-India-China), and regional trade blocs to diversify supply chains.
- Connectivity & Logistics: Enhance transport through INSTC, Northern Sea Route, and Chennai–Vladivostok corridor.
Conclusion
Negotiating an FTA with the EAEU can provide India with market diversification, energy security, and enhanced trade opportunities. Strategic planning, risk mitigation, and multilateral engagement will be critical for maximizing benefits while safeguarding domestic industries.
FREE MARKET CAPITALISM & STATE CAPITALISM MODELS
TOPIC: (GS3) ECONOMY: THE HINDU
The U.S. government recently announced plans to buy a 10% equity stake in Intel, using funds from the CHIPS and Science Act, 2022. This marks a shift from pure free-market principles toward state intervention in strategic sectors, reviving debates on capitalism models.
Free Market Capitalism
- Definition: An economic system where private ownership of resources dominates, with minimal state interference.
- Government’s Role: Limited to enforcing contracts, securing property rights, and maintaining competition.
- Key Idea: Based on Adam Smith’s “invisible hand” – individuals pursuing self-interest indirectly benefit society.
- Examples: U.S. (historically), U.K. during privatization and deregulation phases.
State Capitalism
- Definition: A system where the state owns or controls key industries while still operating within global markets.
- Role of State: Acts as both regulator and investor, particularly in sectors tied to national security and growth.
- Instruments Used:
- State-Owned Enterprises (SOEs)
- Sovereign Wealth Funds
- Government-driven industrial policies
- Examples: China, Singapore, Gulf economies.
Historical Variants of State Capitalism
France’s Dirigisme
- Post-war strategy with state-led industrial planning. State ownership in energy, telecom, and transport.
- Heavy investments in nuclear, aerospace, and computing. Criticism by 1980s–90s: inefficiency, over-bureaucracy, and weak innovation.
Britain’s ‘National Champions’
- Government-backed large firms to compete globally. State support for Rolls-Royce (aerospace), British Leyland (automobiles).
- Tools: subsidies, protection, bailouts, mergers. Most failed due to inefficiency
Strengths & Weaknesses
Free Market Capitalism
- Strengths: Drives innovation & efficiency. Attracts foreign investment.Promotes competition & growth.
Weaknesses: Generates inequality & social exclusion. Vulnerable to financial crises. Can lead to monopolies under weak regulation.
State Capitalism
- Strengths: Protects industries during crises. Enables strategic investment (defense, energy, health, infrastructure). Less prone to speculative bubbles.
- Weaknesses: Risk of corruption & inefficiency. Political interference may distort economic goals. Often stifles private innovation.
CAPITALISM
Capitalism is an economic system where private individuals or businesses own and control the means of production and distribution of goods and services, rather than the state.
Key Points:
- Private Ownership: Individuals or companies own land, factories, and resources.
- Profit Motive: Businesses operate to earn profits.
- Market-driven: Prices, production, and distribution are determined by supply and demand in the market.
- Limited Government Role: The government’s role is usually limited to enforcing laws, protecting property rights, and maintaining competition.
- Competition: Encourages innovation, efficiency, and consumer choice.
Conclusion
Promotes dynamism but risks inequality and crises. Offers stability and strategic growth but risks inefficiency and political misuse.
UNGA INITIATIVES FOR GLOBAL AI GOVERNANCE
TOPIC: (GS3) SCIENCE AND TECHNOLOGY: THE HINDU
The United Nations General Assembly (UNGA) has approved the creation of two new global platforms – the Global Dialogue on AI Governance and the UN Independent International Scientific Panel on AI – to promote cooperation on managing the opportunities and risks of Artificial Intelligence.
Background
- AI is rapidly transforming industries, economies, and governance systems.
- While AI offers benefits in healthcare, education, agriculture, and innovation, it also raises ethical, security, and privacy challenges.
- To ensure AI development aligns with human values and collective welfare, global cooperation is necessary.
New UN Mechanisms
Global Dialogue on AI Governance
- Acts as an inclusive UN-led forum for member states and stakeholders. Provides a platform for discussions on pressing AI-related issues affecting humanity.
UN Independent International Scientific Panel on AI
- Purpose: Multi-stakeholder body involving governments, academia, civil society, and private players.
- Function: Examines AI challenges, promotes evidence-based policymaking, and shares best practices.
- Sessions: First meeting in July 2026 (Geneva), second in July 2027 (New York).
Significance of the Move
- Called a “milestone step” by the UN Secretary-General.
- Balances benefits and risks of AI.
- Strengthens international cooperation on responsible use.
- Ensures AI remains aligned with public interest and global good.
Why Rules on AI Are Needed
- Ethics: Prevents bias, discrimination, and misuse of AI decisions.
- Privacy: Protects personal data from misuse.
- Security: Safeguards against malicious applications and cyber risks.
- Transparency: Makes AI algorithms more explainable and accountable.
AI Regulation in India
- No dedicated AI law yet; regulation is indirect through existing acts.
- IT Act, 2000: Cybercrimes, intermediary liability.
- Digital Personal Data Protection Act, 2023: Data privacy and consent.
- IPR laws: For AI-generated works.
- Global Partnership on AI (GPAI): India is a member; hosted GPAI Summit 2023 in New Delhi.
- NITI Aayog Initiatives: AIForAll Strategy: AI in healthcare, agriculture, education, cities, and mobility.
Challenges in Regulation
- Fast-paced evolution of AI → hard to draft future-proof laws.
- Balancing innovation vs. safety.
- Need for global cooperation to avoid fragmented rules.
- Lack of universal definition of AI.
Way Forward
- AI must be regulated proactively to avoid misuse.
- Encourage international cooperation under UN platforms.
- India should refine its hybrid regulatory approach to balance innovation, ethics, and security.
conclusion:
the UN initiatives provide a crucial framework for global collaboration on responsible AI governance, balancing innovation with ethical and security considerations. For India, aligning domestic policies with these international efforts will help harness AI for inclusive growth while safeguarding public interest.
BROWN DWARFS
TOPIC: (GS3) SCIENCE AND TECHNOLOGY: THE HINDU
Astronomers have discovered a rare quadruple star system in the Milky Way — UPM J1040−3551 AabBab — consisting of two brown dwarfs orbiting two young red dwarf stars, a configuration not seen before.
What are Brown Dwarfs?
- Definition: Objects that are intermediate between stars and planets.
- Formation: Formed like stars from collapsing gas and dust clouds.
- Limitation: Lack sufficient mass for sustained hydrogen fusion, hence called “failed stars.”
- Mass: Up to 70 times the mass of Jupiter.
- Atmosphere: Similar to gas giants like Jupiter and Saturn, containing clouds and molecules like H₂O.
Significance
- Understanding Star & Planet Formation: Offers insights into conditions necessary for star and planet formation.
- Mass Distribution: Helps study the distribution of mass in the universe.
- Rare Systems: Discoveries in unique multi-star systems improve knowledge of stellar dynamics and gravitational interactions.
Key Features of UPM J1040−3551 AabBab
- Comprises two cold brown dwarfs orbiting two young red dwarfs, forming a quadruple system.
- Extremely rare configuration aids in studying orbital mechanics and stellar evolution.
- Provides clues on coexistence and interaction of different celestial bodies in a single system.