Daily Current Affairs (DCA) 5 March, 2025

Daily Current Affairs Quiz
5 March, 2025

International Affairs

1. U.S.-Taiwan Relations

Context:

This updated edition of the U.S. State Department factsheet on Taiwan has raised discussions on the developments in U.S. Taiwan relations, particularly with regard to the updated factsheet which omitted the former declaration that the U.S. does not support Taiwan’s independence. Instead, added new affirmation of support for Taiwan’s membership in international organizations, which has been met with strong protest from China and regarded as a policy regression on the part of the United States.

Key Aspects of U.S. Taiwan Relations

Taiwan Relations Act (TRA), 1979

• The bedrock of U.S. Taiwan relations.
• Promotion of robust commercial, cultural, and defence ties.
• Mandates the U.S. provision of defensive arms to Taiwan.
• Induces constant arms sales from the U.S. to Taiwan, angering China.

Donald Trump’s Attitude Toward Taiwan

• Instability in U.S. China Relations
  • Trump’s tariff and trade policies are often held responsible for increased strain in U.S. China relations while having a bearing on Taiwan.
• Concerns Over Taiwan’s Semiconductor Industry
  • He has explained that Taiwan has robbed the U.S. chip industry.
• Demand for Elevated Defense Spending
  • He demands Taiwan to contribute more to guarding itself and obliges it to inflate the defense budget (currently slightly above 2.5% of GDP).
• Weapon Deals Through and Political Support
  • Approved arms sales worth USD 10 billion in his final stint.
  • Enacted Taiwan legislative acts including the Taipei Act and the Taiwan Assurance Act.
• Ambiguous Commitment Toward Taiwanese Security
  • Suggested that he would be too far away to help if China invaded Taiwan.

Taiwan’s Vulnerability

• Increasing aggressiveness coming from China
  • Frequent military maneuvers across the Taiwan Strait.
  • Spy balloons and cyber attacks against Taiwan.
• Diplomatic isolation:
  • Taiwan has lost a few of the countries that had been its diplomatic allies under the Democratic Progressive Party (DPP) government.
  • At present, Taiwan is recognized officially by only 12 countries.
• Impact upon Taiwan by the U.S. China Conflict
  • For China, Taiwan is a major part of their national reunification and President Xi Jinping’s dream.
• For the U.S.: Taiwan is important because of
  • Its semiconductor industry (Taiwan Semiconductor Manufacturing Company, TSMC, is a world leader).

New U.S. policy on Taiwan heightens tension with China. Trump has issued mixed signals on Taiwan’s ability to defend itself, sowing doubt in Taipei about U.S. government intentions. Pressure on Taiwan is increasingly military and diplomatic by China.

2. Strengthening India-U.K. Relations

Context:

External Affairs Minister S. Jaishankar is commencing his visit to the United Kingdom (U.K.) in pursuit of bilateral ties. Meetings at London have been engaged in trade, security and diplomatic engagement, where issues such as India-U.K. Free Trade Agreement (FTA), talent mobility, security cooperation, and technology partnerships have been discussed.

Discussions for India U.K. Free Trade Agreement (FTA)

• Meeting with the Trade and Business Secretary Jonathan Reynolds: Progress made in the India U.K. FTA, a long awaited trade deal facilitating improved economic cooperation.
• The FTA has been high priority for both countries where market access, tariff, and investment issues were discussed.

Discussions of Security and Mobility with U.K. Home Secretary: Yvette Cooper

Topics include

• Flow of talent and people to people exchanges.
• Counter trafficking and tackling extremism.
• Enhancing collaboration in these areas has a considerable impact on India and U.K. relations, especially under the concerns of illegal migration and security threats.

Expansion of India’s Diplomatic Presence

• New Indian consulates will be opened in Belfast on March 7 and Manchester on March 8. It is expected to:
  • Foster trade and investment ties.
  • Improve support to the Indian diaspora in the U.K..
  • U.K. Foreign Secretary David Lammy, therefore, bartered that this would enhance economics and community relations.

High Level Talks at Chevening House

• Jaishankar and Lammy to deliberate on information technology security initiative birthed during David Lammy’s visit to Delhi in July 2024.
• Areas of collaboration include
  • Critical minerals (Important for technology and renewable energy industries).
  • Artificial Intelligence (AI) and telecommunications.
  • Resilient supply chains and affordable healthcare.

India U.K. relations are being expanded across the board, in trade, technology, security, and diplomatic outreach. Negotiation of the India U.K. FTA continues to be a major emphasis, as both sides are keen to have a closure to it.

3. India-Belgium Relations

Context:

A high profile economic delegation from Belgium comprised Princess Astrid and Deputy Prime Minister Maxime Prévot, visiting New Delhi to amplify Belgium India ties. Discussion points were strategic autonomy in defense, economic cooperation, and the resultant geopolitical shifts caused by the U.S. policy change on Ukraine.

Major Points from the visit

Belgium’s Call for Strategic Autonomous Defense

• European concerns over shifted U.S. policy on Ukraine gave rise to a demand for an independent defense strategy for Europe.
• Belgium plans to build its defense sector by virtue of Indian collaboration.
• India and Belgium are to sign an MoU on defense cooperation between them by the end of 2025.

Top Level India Belgium Meetings

• Princess Astrid met Prime Minister Narendra Modi and discussed matters boosting bilateral cooperation.
• Deputy PM Prévot & Defense Minister Theo Francken illustrated the support of Belgium for Ukraine and furthered the India Belgium defense ties.
• Belgium will post a Defense Attaché in India for further working together in defense.

Indian Diplomacy on Russia Ukraine Issue

• MoFA consultations for Foreign Secretary Vikram Misri to Moscow.
• Preparations for the Modi Putin bilateral talks are made as Putin may visit India in 2025.
• Modi was also invited to the Victory Day celebrations of Russia on May 9.

Economic and Technological Cooperation

• Belgium’s business delegation of 300 members has come to expand economic cooperation.
• 24 MoUs signed across core sectors, which include:
• Defense technology – Belgium will assist “Make in India” initiative by India.
• Food processing, health, engineering, and education.
• Belgium intends narrower economic ties with India as Europe will become used to a shift in global geopolitics.

India Belgium Joint Venture in Defense

Belgium has partnered with Pune based Electro Pneumatics and Hydraulics (EPH) Pvt. Ltd. to create a Joint Venture (JV) in India. The JV is targeted primarily at India’s light tank program particularly the Zorawar light tank, developed by DRDO and Larsen & Toubro (L&T).

This JV promotes the employment of major stats in India Belgium defense, coinciding with their most recent global defense cooperation memorandum of understanding which is to be signed by the end of 2025.

Key Features of the Joint Venture

Targeting Zorawar Light Tank for Indian Army

• The Zorawar light tank was developed as a counter against China’s military threats in eastern Ladakh.
• Zorawar’s undergoing advanced trials, where the turrets from JCD & EPH will be used.
• Projected demand: may ultimately come to 700 light tanks for India.

Beyond the Light Tank: Larger Defense Programs

• Such cooperation will go beyond Zorawar, extending to India’s many defense programs.
• JCD is counting on India’s skills in AI and electronics to produce the next generation turret systems.
• Some collaboration opportunities include
  • Technologies related to advanced combat vehicles.
  • Turret modernization for armored forces.
  • AI driven battlefield systems.

Electro Pneumatics & Hydraulics

• 25 years experience in the defense sector, especially simulators and missile launchers.
• Generate revenues of ₹300 crores, having its manufacturing facility at Chakan based in Pune.
• About 35-40% of total revenue comes from the defense sector.

Strategic Importance of the Partnership

• It directly strengthens the Make in India initiative and PATs simply foreign dependence.
• Most certainly strengthens the Indo-Belgian defense ties in light of the fact that it precedes the signing of the MoU on defense cooperation (2025).
• Also makes India’s military preparedness stronger against that backdrop of border tensions.
• It certainly positions India as a global defense manufacturing hub with AI and electronics innovations in the arsenal.

Growing Belgium India relations will mainly focus on defense, trade, and strategic autonomy. Belgium needs a more independent defense in Europe while there’s still a fair degree of uncertainty regarding American commitments towards Ukraine. India continues to engage diplomatically with both Russia and Europe for a balanced foreign policy. Defense cooperation and economic investments show the deepening India Belgium partnership.

4. Tariffs on Canada, Mexico, and China by Trump

Context:

President Trump of the United States has imposed sweeping tariffs on Canada, Mexico, and China, raising barriers against possible trade wars and threats of worldwide economic instability. Besides, the newly introduced tariffs will come into effect on Tuesday, i.e.

• a tariff of 25% on imports from Canada and Mexico
• a 10% tariff on energy products imported from Canada
• and an increase of another 10% on tariffs with respect to goods from China

These steps have incurred hurt feelings among respective nations, which put inflation as a cause for concern, volatility in markets, and tensions in international diplomacy on the front burner.

Key Tariff Measures & Global Responses

• U.S. Tariffs & Immediate Economic Consequences
  • Canada & Mexico: 25% tariffs on imports, including Canadian energy products (10%).
  • China: Previous 10% tariff on imports doubled to 20%.
• Economic Consequences for the U.S.
  • U.S. consumers facing escalated prices due to increased import costs.
  • Disturbance in the market as globally investors remain anxious.
  • A possible surge in inflation could jeopardize domestic economic stability.

Retaliatory Actions by Trade Partners

• Canada’s Response
  • Within 21 days, $100 billion in tariffs on American goods.
  • Trudeau’s statement: Trump wants to diminish Canada’s economy, so it becomes easier for the U.S. to annex it.
  • Likely to affect U.S. exports in agriculture, manufacturing, and technology sectors.
• China’s Response
  • Tariffs of 5% to 15% on an array of U.S. farm exports.
  • Further export controls and other trade restrictions on over two dozen U.S. companies.
  • Chain reaction in retaliation could affect U.S. agriculture and technology industries.
• Mexico’s Response
  • President Claudia Sheinbaum announced tariffs in retaliation on goods imported from the United States.
  • Complete list of goods targeted yet to be announced.
  • A longer delay would suggest Mexico seeks to negotiate a solution instead of escalating tension.

Wider Implications

• Risk of Full Paying Trade War
  • Higher costs for consumers across the globe.
  • Possible disruption of supply chains into significant industries.
  • Higher tensions in North America affecting USMCA trade relations.
• Political and Diplomatic Ramifications
  • Canada U.S. relations with a lot of strain, accentuated by Trudeau’s charge of annexation.
  • Erosion of China U.S. relations as Beijing doubles down on its own economic countermeasures.
  • Anything goes for Mexico U.S. trade relations, hanging on the balance of Sheinbaum’s tariff plans.
• Domestic U.S. Economic Threats
  • Higher inflation and cost of living.
  • Economic uncertainty may pose a threat to the 2026 elections.
  • Possible loss of access to markets for U.S. exporters.

Almost certainly, Trump-initiated tariff measures on Canada, Mexico, and China will raise tensions and disrupt world trade. In the U.S., the immediate economic fallout means higher prices for consumers, inflation risk, and volatility in the market. Retaliatory tariffs from the nations involved will likely follow, aggravating diplomatic relations.

5. The Blue Ghost

Context:

U.S. private firm Firefly Aerospace succeeded in the landing of its uncrewed Blue Ghost spacecraft on the Mare Crisium area of the moon. The compact car sized lunar lander is carrying ten scientific payloads for a two week research mission and is a significant achievement in the commercial space race.

The Important Aspects of the Mission

• Size of Lander: Compact car.
• The site of landing: Mare Crisium an ancient volcanic basin on the northeastern Earth facing side of the moon.
• Scientific Goals
  • To conduct lunar surface investigation for NASA and commercial clients.
  • To test new technologies for future moon missions.
  • To investigate volcanism and lunar surface composition.

NASA’s Strategic Vision and Space Dominance

• According to NASA’s acting administrator, Janet Petro, the U.S. plans to dominate space to maintain its global leadership.
• The mission serves the goals of NASA’s Artemis program, which aims to build sustainable lunar exploration.
• The U.S. is in a race against China, Russia, and private enterprises to take the lead in lunar exploration and deep space exploration.

The Role of Private Space Companies

• Firefly joins the ranks of other private companies in moon commercialization.
• The mission is being managed through NASA’s Commercial Lunar Payload Services (CLPS) program to foster public private partnerships in space.

Broader Implications

• The New Moon Race
  • U.S. vs. China: China has ambitious plans for a lunar base by 2030.
• Rise of Private Companies
  • Private firms are now playing a leading role in space exploration.
• Scientific and Economic Potential
  • The moon holds resources (helium 3, water ice) that could serve as potential for future space industries.
• National Security and Geopolitical Implications
  • According to the U.S., any lunar domination will be critical to sustaining space supremacy.
  • Possible military and economic rivalry over lunar resources.
  • The heightened militarization of space can lead to new international regulatory ripples.

With its successful moon landing, Firefly Aerospace has become a historic milestone in the private sector of space. A lunar dominance is U.S. policy now, while the commercial space race has grown even hotter with China and others racing to establish a long term presence on the moon.

6. US Strategic Cryptocurrency Reserve

Context:

The announcement from US President Donald Trump on forming a strategic cryptocurrency reserve has already caused a sharp increase in the crypto market and put serious concerns among economists. The reserve will comprise Bitcoin, Ethereum, Ripple, Solana (SOL), and Cardano (ADA).

Major features of the strategy for the strategic crypto reserve

Purpose & Structure

• The reserve is modeled around the US Strategic Petroleum Reserve, intended to stabilize markets during disruptions.
• Unlike products like oil, which have a supply demand basis for these actions, cryptocurrency cannot be said to have that same basis.
• The move could signal official recognition of cryptocurrencies as a legitimate financial asset.

Expected Effects on Markets

• The estimated seized cryptocurrencies in the USA sum up to about $17 billion, while China boasts an approximate $19 billion.
• An actual reserve might act as a precursor to more central banks and sovereign wealth funds adding crypto assets to their portfolios, sustaining price increases over a long term.
• US interference in cryptocurrency markets will bring heightened price “volatility” sensitive enough in nature to contribute to sky high gains.

Concerns & Controversies

Undermining the US Dollar

• The USA issues the world reserve currency (USD) and can invoke printing money as a means for global transaction settlement.
• Such a development might weaken confidence in the dollar and raise questions concerning the US government faith in its own currency as it creates a crypto reserve.

Market Manipulation Potential

• In case the President controls the reserve instead of being administered under the Federal Reserve, it may allow Trump intense leverage over crypto markets.
• A huge buy or sell operation from the US government would probably cause huge price fluctuations favoring those who are privy to inside information.
• Trump and his close allies, including Elon Musk, are known to have personal crypto interests, raising conflict of interest concerns.

Centralization Risks

• In contrast to Bitcoin and Ethereum, which are still considered decentralized, companies like Ripple, Solana, and Cardano are run by private entities.
• This could be politically complicated and regulatory if certain government linked entities own substantial amounts of money.

The US strategic cryptocurrency reserve may, in consequence, herald a new global financial landscape by accelerating the mainstream acceptance of the economic phenomenon. However, it also raises serious issues regarding potential financial instability, conflict of interest, and the role of the US dollar.

National Affairs

1. Offshore Mining

Context:

The Kerala Assembly has unanimously passed a resolution against the country’s decision regarding offshore mining along the coastline of the State. Chief Minister Pinarayi Vijayan moved it, with much apprehension on the consequences regarding the environmental, economic, and security implications.

What is Offshore Mining?

Offshore mining is the process of extracting minerals and precious stones from the seabed. It can involve pumping the material to the shore and leaving tailings on the beach. 

Critical Concerns Raised

• Environmental Damage to Marine Ecosystems
  • Destruction of the fragile marine ecosystem would be a consequence of deep sea mining.
  • Impacts Kerala’s electrifying fisheries sector as it threatens fish resources and biodiversity.
• Economic Effects on Fishing Community
  • Fishing is an important livelihood for thousands of people in Kerala.
  • Decrease in fish stock would harm employment and income due to offshore mining activities.
• Threat to National Security
  • The amended Offshore Areas Mineral (Development and Regulation) Act, 2002 allows private people to access strategic deep sea minerals.
  • The aspect of security risk is raised from the government of the State due to the control of important resources.
• Worries over Central Government Policy
  • Under the 2023 amendment of the Act, the Union Ministry of Mines can auction deep sea mineral blocks.
  • Kerala clearly states that this sort of measure is taken without proper consultation and disregard to the interests of the State.

Expert Warnings and Way Forward

• Marine experts and environmentalists keep revealing the long term ecological impacts they are predicting.
• The State government demands for the reconsideration of the move and advocates for sustainable marine resource management.
• More inclusivity from Kerala places the demands of local livelihoods and environmental concerns before putting such policies into action.

By standing firm and united against offshore mining, Kerala would make strides towards protecting her coastal line, the economy, and marine biodiversity from potentially irreversible damages.

Source: TH

2. Issues Related To Income Tax Bill, 2025

Context:

The Income Tax Bill, 2025, introduced in Parliament, seeks to repeal the Income Tax Act, 1961, ostensibly to put in simple tax laws for easier compliance and administration. But, while the Bill brings some structural changes, it does not tackle issues that are more complex, in fact, in some areas, it further empowers the government by expanding the contours of its power.

Key Issues with the Bill

Lack of True Simplification

• The Bill uses dense arcane language making comprehension by taxpayers hard.
• Changing a legal term from “notwithstanding” to “irrespective” does not make much of a clearer statement.
• Global standards favor plain language in legal drafting, and this Bill does not follow that practice.

Cosmetic Changes Without Policy Reform

• The basic philosophy of taxation remains unchanged, giving the impression of a revamped version of the 1961 Act.
• Some redundancies have been cleared, but to have amended these through amendments instead of a completely fresh law detracts from the spirit of this new law.
• Cross referencing of older legislation (for example, designing “income” by reference to the 1961 Act) negates any reason for a new statute.

Risk of Increasing Litigation

• The 1961 Act has seen several court decisions interpreting different provisions, thereby providing clarity to taxpayers.
• Such changes to the Bill could reopen a lot of the settled legal debates now causing lengthy litigation and uncertainty.

Reassessment Powers Very Wide

• Income tax authority would previously reopen completed assessments on the grounds that “reason to believe” that some income has escaped the tax net.
• In 2021, this was diluted to reopen on the grounds of “information”, a vague term.
• The Bill doesn’t repair this ambiguity, allowing much room for the discretion of tax officials.

Unprecedented Digital Intrusion

• The search and seizure laws are immensely broadened under this Bill.
• Officials shall inspect electronic devices, cloud storage, e mails and social networking accounts, and other digital platforms.
• If the taxpayer denies access, authorities are allowed to override access codes and enter  the system.
• The law of the land does not provide judicial oversight, and tax authorities can keep the reasons for the search private.

What the Bill has Achieved?

• Elimination of some obsolete provisions.
• Collation of compliance timelines into tables/schedules.

What the Bill has Failed to Achieve?

• Truly simple tax laws accessible to all.
• Addressing issues concerning excessive governmental power.
• Create legal certainty using unintended unnecessary changes.

Rather than repealing and reenacting the tax law, a more prudent approach would be to refine the existing Act by eliminating complexities and reducing discretionary powers. If passed in its current form, the Bill risks increasing litigation, reducing transparency, and expanding state surveillance in unprecedented ways.

Source: TH

3. Delimitation Debate in India

Context:

After a considerable hiatus, delimitation has returned to the fore when the Tamil Nadu Chief Minister voiced his concern over changes in Lok Sabha and State Legislative Assembly constituencies. The delimitation exercise would next be conducted after the first Census post 2026. Meanwhile, arguments have flared across party lines on the impacts of the 2021 Census delay on federalism and political representation.

Constitutional Provisions Regarding Delimitation

• Definition
  • Delimitation process is the fixing of number and boundaries of constituencies for the Lok Sabha and the State Assemblies.
• Authority
  • The Delimitation Commission constituted under an Act of Parliament carries out this process.
• Historical Background
  • The delimitation exercises were held on the basis of the 1951, 1961, and 1971 Census.
• Present Scenario
  • The number of Lok Sabha seats was stopped at 543, as per the outcome of the 1971 Census, when the population of India was counted at 54.8 crore. This freeze aimed for population control enhancement, revised after the completion of the first Census after 2026.

Delimitation Issues

• Population growth uneven
  • Higher population growth has recorded for the Northern States (like UP, Bihar, MP, Rajasthan).
  • On the contrary, Southern and small northern States (like Kerala, Tamil Nadu, Punjab, Himachal Pradesh, Uttarakhand, Northeast) grew slowly due to the effective population control measures.
  • Newly apportioned seats based on Census will soon deny representation from southern and smaller States.
• Two Possible Scenarios Indicated for Delimitation
  • Scenario 1: Retain the number of seats at 543 and redistribute these among states based on latest population figures.
  • Scenario 2: Bring in an increment of Lok Sabha seats to 848, proportionately increasing all states.
• Federal Imbalance Possibilities
  • If a population based criterion exists, then larger northern states will gain political weight through more seats while the southern and smaller northern states become politically weaker.
  • The above could transform the representation of southern states from 24% into near 19%, creating a reduced voice in national policymaking.
  • This could undermine the federal structure, therefore causing discontentment among states with a successful population management.

Possible Solutions and Way Forward

• 543 Cap for Lok Sabha Seats
  • Similar to the U.S. House of Representatives, which has capped its seats at 435 since 1913, despite population growth.
  • It has had 543 MPs in India over the last five decades, whereas the population spoke from 55 crores to 145 crores.
  • India, which expects its population to peak at 165-170 crore and will subsequently decline, should retain this number.

Increase Number of State Assembly Seats

• While seats in Lok Sabha stay the same, the number of MLAs in each State can be increased according to demographics for better local representation.
• Representation through an alternative model
  • Weighted voting system: MPs could have different voting weights based upon the population so that the bigger States may not have lesser representation.
  • Additional Rajya Sabha representation: Smaller States could, through increased representation in the Rajya Sabha, be compensated for their disability.

Source: TH

Banking/Finance

1. Multi-Asset Allocation Fund (MAAF)

Context:

In the recent equity market corrections, the flexible asset allocation plans found their fullest expression in the higher differentiated, debt oriented MAAF returns thus demonstrating their very much needed relevance today.

Multi-Asset Allocation Fund

A “Multi Asset Allocation Fund” is a mutual fund that invests in a mix of different asset classes like equity, debt, gold, real estate, and commodities, with the objective of diversifying an investor’s portfolio and reducing overall risk by spreading investments across various markets that may react differently to economic changes; essentially, it allows investors to gain exposure to multiple asset types through a single fund, managed by a professional fund manager who adjusts allocations based on market conditions.

Key Points

• Diversification
  • Multi asset funds come with a huge advantage of risk diversification. By spreading investments across several classes of assets the fund has to build stability more so during market fluctuations. This diversified exposure may help in minimizing the potential impact of poor performance of one class of assets.
• Hybrid Nature
  • Multiasset funds are usually categorized under hybrid funds. They vary between different kinds of assets by blending equities, bonds, commodities, and much more into a single portfolio, which makes them more versatile with changing market conditions.
• Allocation Flexibility
  • Such funds have flexibility in asset allocation. The proportion between various asset classes could be changed with respect to specific fund and the needs of investor. This is what allows an investor to select a mix based on his personal tolerance for risk as well as personal objectives while investing.

Few Examples of the Asset Classes Incorporated

• Equity Stocks
  • Exposure of the performance by companies and overall market growth.
• Bonds
  • Generates income in the form of interest payments with lower volatility.
• Gold
  • An inflation hedge and store of value REITs Investments in real estate, properties and associated assets.
• Commodities.
  • Those include physical assets like oil and gas and agricultural products.

Investment Strategy and Taxation Considerations

• Risk Appetite Matching MAAF Selection
  • Investors with higher risk tolerance might prefer an equity oriented scheme with a longer investment horizon.
  • Those who are conservative and are looking for a shorter time frame would have gone for debt heavy MAAFs.
• The Taxation Impact on Asset Allocation
  • Equity taxation: Requires minimum 65% allocation to equities.
  • Hybrid taxation: Requires at least 35% equity exposure.

Factors Driving Recent MAAF Performance

• Higher exposure to gold, silver, and debt instruments boosted returns.
• Investments in REITs, InvITs, and arbitrage strategies provided additional diversification.
• Foreign equities allocation (DSP Mutual Fund) helped mitigate downside risks.

The rise of flexible, debt oriented MAAFs suggests that adaptive asset allocation is gaining ground. In the course of the larger growth of multi asset funds, investors should think of matching their own selection of MAAFs based on risk appetite, taxation stipulations, and investment objectives and not get stuck with immediate past performance.

Source: BS

2. SEBI Consultation Paper Regarding Market Regulations

Context:

There was a sharp decline of almost 20% in BSE Ltd’s stock price following the issuance of SEBI‘s consultation paper regarding market regulations. Initially, fears rose regarding a possible plunge in trading volumes, but analysts believe that some of the SEBI proposals might be less damaging than anticipated.

The paper is comprised of two parts.

Part-A Index Derivative Changes (Mainly Affected by the Market)

• Change from Notional Value to Delta Based Open Interest Calculation
  • Open interest (OI) calculation will shift from the current notional value calculation mode to one based on delta based future equivalent approach.
  • SEBI has proposed a limit of ₹500 crore net future equivalent for each entity.

Reality Check

• SEBI states that 89% of index derivative positions in November were within the proposed limit, meaning only 11% exceeded it.
• The intention behind the ruling is to prevent systemic risks should OI exceed ₹10,000 crore, which is a rare occurrence.
• This points towards the fact that perhaps trading volumes will not be impacted as much as originally feared.

Part-B Non Benchmark Indices Rules (Nifty Bank, BSE Bankex, etc.)

• New eligibility criteria for non benchmark indices derivatives (excluding Nifty 50 & Sensex)
  • Minimum 14 constituents (vs. Nifty Bank’s current 12)
  • Top stock weight capped at 20% (vs. HDFC Bank’s present 33% in Nifty Bank)
  • Combined weight for the top 3 stocks capped at 45%

Reality Check

• It is quite simple for exchanges (NSE, BSE) to modify index composition to fulfil the newly imposed requirements. Hence derivatives based on those indices are highly unlikely to be discontinued.
• The measure really puts bounds on stock price manipulations by large players, thereby improving market integrity.

Effect on Single Stock Derivatives

• SEBI states that the revised position limits would apply for single stock derivatives
  • 15% of free float market cap (down from 20%).
  • 60x average daily delivery value (up from 30x).
• Reality Check
  • The net impact is uncertain, but it probably impacts a few low liquidity F&O stocks.

Market concerns are exaggerated; actual trading volume impact could be limited. SEBI’s new rules tackle systemic risk & manipulation risk in the market rather than restricting trading activity.

Source: Mint

3. Mitraa Platform

Context:

There are millions of investors in India who have lost touch with old mutual fund (MF) investments owing to dead accounts. One solution paving the way to this issue is Mitraa (Mutual Fund Investment Tracing and Retrieval Assistant), a platform launched by the Securities and Exchange Board of India (SEBI) to assist investors in tracking and recovering dormant MF folios.

What is Mitraa?

• A centralized online platform assisting investors in locating and recovering lost mutual fund investments.
• Developed in collaboration with KFin Technologies and CAMS, India’s largest qualified registrar and transfer agents (QRTAs).

Why Was Mitraa Developed?

• Pre 2006 MF Accounts Lacked PAN Requirement
  • Prior to PAN becoming a mandatory requirement in 2006, a number of mutual fund investors opened accounts unlinked to PAN.
  • Consequently, such accounts practically became dormant, leaving them difficult to trace.

Definition of Inactive Folios

• Under this definition, SEBI termed an inactive folio wherein the investor has not initiated any transactions (financial or otherwise) for 10 years but still holds units.
• There are an estimated over 7.5 million inactive folios throughout the industry.

How Does Mitraa Work?

• Investors can search for old mutual fund folios using any of several identifiers rather than restricting themselves to PAN only.
• Search Parameters
  • Primary Identifiers: PAN, registered phone number, email, or bank account number.
  • Additional Identifiers: Name, address, PIN code, city or nominee details.
  • Investors can visit MFcentral.com to access Mitraa.

Challenges & Reactions from the Industry

• Verification Problems
  • Investors may find it a challenge to prove ownership if they opened accounts prior to PAN being compulsory.
  • Having SEBI’s policy of fixing inaccuracies with multiple unique identifiers such as being able to punch in different PIN codes actually works in favor of those trying to work this out.

Source: Mint

Economy

1. FTAs and Customs Duty Impact in India

Context:

India’s ongoing negotiations for trade deals with developed economies like the U.S., EU, and UK could further pressure customs duty collections that are expected to grow only 2.1% to ₹2.4 trillion in FY26.

Growing Revenue Loss Due to FTAs

• Customs duty foregone in FY25: ₹94,172 crore.
• Major revenue losses by region
  • ASEAN: ₹37,875 crore
  • Japan: ₹12,038 crore
  • South Korea: ₹10,335 crore
• FTAs with Australia (₹5,234 crore) and UAE (₹4,841 crore) also impacted revenue considerably.

New Trade Agreements on the Rise for India

• India U.S. Trade Deal
  • Negotiations for “mutually beneficial” bilateral trade agreement (BTA) to commence within 7 8 months.
• India EU-FTA
  • The deadline is set for December 2025.
• India UK FTA
  • No fixed deadline; Commerce Minister Piyush Goyal emphasized speed but not haste.

Challenges and Considerations

• Impact on Customs Revenue
  • India’s high tariffs require substantial reductions in FTAs, which would lead to greater customs revenue loss.
  • Currently, only 25% of India’s imports come under FTAs.
  • After FTAs with U.S., UK, and EU, this is expected to be 60-65%, further increasing revenue forgone.

India’s expanding free trade agreements with larger economies will continue to erode customs revenue. While this will help the growth of trade and industry, the policymakers need to find a balance between trade liberalization and the domestic industry protection.

2. India Financial System Stability Assessment: IMF

Context:

The International Monetary Fund (IMF), in its report titled “India Financial System Stability Assessment,” expresses concerns about the risks of Non Banking Financial Companies (NBFCs) for the financial system of India. The report identified:

• The overexposure of NBFCs to power and infrastructure sectors
• Interconnectedness of NBFCs with other financial markets
• Possible banking risks in case of stagflation

Key Findings

NBFC Risks Due to Power Sector Exposure

• 63% of power sector loans in FY24 came from just three large infrastructure financing NBFCs, rising from 55% in FY20.
• 56% of NBFC lending was financed through market instruments, the remainder by bank borrowings (which have increased since FY19).
• State owned NBFCs (e.g. IREDA) are in even greater risk.

Interconnectedness with Banks & Market Instruments

• With massive reliance on market instruments and bank borrowings, NBFCs become vulnerable to liquidity shocks.
• Any stress on the NBFCs may cause spillover to the entire financial system, affecting banks and investors.

Stagflation Stress Test on Banks

• IMF simulated a stagflation scenario (low growth + high inflation).
• Public sector banks (PSBs) may struggle to maintain the minimum requirement of the 9% Capital Adequacy Ratio (CAR).
• IMF suggests PSBs strengthen capital reserves by retaining earnings instead of paying dividends to the government.

Conclusion & Recommendations

• For NBFCs: Reduce overdependence on power & infrastructure sectors and enhance risk management.
• For Banks: Strengthen capital buffers in order to withstand shocks in case of economic downturns.
• For Policymakers: Ensure financial stability within the purview of NBFC bank linkages and preparations for potential external risks.

Source: TH

3. RBI Likely to Cut Repo Rate Again!

Context:

Economists project a cut in the repo rate by 25 basis points (bps) in April in support of economic growth.
The February meeting of the MPC saw the policy repo rate cut by 25 bps to 6.25%, this was the first cut after nearly five years.

Key Highlights:

Liquidity is tight, with the banking system remaining in a ₹1.09 trillion deficit for 11 weeks consecutively. Concerns abound that cuts in rates may actually not mean cuts in lending rates due to liquidity.
GDP growth is expected to slow down to around 6% in FY25, following a revision of 9% in FY24.

Economic & Monetary Policy Outlook

• Reasons for Rate Cut Expectations in April
  • The inflation trends are getting softer, especially in respect of food prices.
  • Economic growth is slowing, requiring policy stimulus.
  • The macroeconomic measures are put in place to assist recoveries.
  • The MPC’s dovish bias frankly gives space for further easing.
• Leading economists and institutions will have the following views
  • DBS Bank: Expects a 25 bps cut in April and possibly thereafter shift towards an accommodative stance.
  • UBS: Forecasts a 50 bps reduction of the repo rate in this cycle and some measures aimed at interbank liquidity.
  • HDFC Bank: The rationale for further rate cuts is supported by moderate Q3 GDP growth.

Challenges

• As of Monday, the deficit in banking system liquidity stood at ₹1.09 trillion for the last 11 continuous weeks.
• Poor transmission of rate cuts means lending rates that do not link to an external benchmark may not go down.
• Some economists argue that more liquidity problems take precedence over rate cuts

In April, a cut is anticipated but liquidity will likely hinder the cut’s effectiveness. RBI may be required to inject liquidity into the system to facilitate financial conditions. Except for tepid credit growth, continued liquidity tightening may be another constraint.

4. Trump’s Reciprocal Tariff Threat

Context:

President Donald Trump’s threat to impose reciprocal tariffs on India does evoke certain economic concerns. Beyond that, such a threat seems to provide an opportunity for India to revisit its protectionist trade policies and adopt a more liberal approach toward enhancing manufacturing and exports.

Challenges in the Indian Trade Regime Today

High Tariffs & Protectionism

• India has one of the highest tariff structures in the world.
• Manufacturing tariffs: 13.4% greatly over 3x higher in comparison to the US (3.6%) and EU (3.8%).
• Agricultural tariffs: 40%, far exceeding that of the US (7.1%) and EU (9.4%).
• Many goods are subject to tariffs greater than 50%, restricting the Indian trade policy.

Unpredictable Trade Policies

• India would hardly ever raise applied tariffs less than WTO bound rates.
• The passing of dated Quality Control Orders (QCOs) on various items, polyester and viscose included, creates non tariff barriers that add uncertainty to the business climate.

Complexity & Administrative Drudgery

• 65 different ad valorem tariff rates and 145 unique specific tariffs as per 2024.
• These issues are compounded by an array of cess and duties.
• Recent cases like Volkswagen’s $1.4 billion penalty for classification issues highlight complexity costs.

Possible US Retaliations and Consequences

• To retaliate, Trump has imposed 100% tariffs on Indian export, which can effectively cripple these industries like textile, engineering goods, and auto components.
• This might result in eroding investor confidence, thereby damaging India’s global trade reputation.
• This might put India’s China+1 opportunity in jeopardy: Global firms will be discouraged from diversifying their supply chains into India.

Two Possible Options for India

An Approach of Bargaining Using Transactions (Risky)

• Proceed with bilateral negotiations to reduce some tariffs and give concessions to the USA.
• This, on the other hand, could trigger a sustained period of uncertainty, postponing investment decisions.
• Increased risk of post agreement monitoring by the USA, which will burden the businesses with compliance.

Structural Trade Reforms (Recommended Course)

• Tariffs should be unilaterally rationalized to uplift competitiveness and manufacturing exports.
• Key Reforms Required
  • Introduce a uniform tariff in the range of 5 10%% to simplify the structure.
  • Remove QCOs and non tariff barriers restricting imports.
  • Make low cost inputs accessible, enhancing competitiveness for Indian exports.

Agriculture

1. India’s Agricultural Exports Amid U.S. China Trade War

Context:

There may be only a few advantages to India’s agricultural exports in the ongoing trade war between the U.S. and China, with cotton as the biggest gainer. On the other hand, domestic farmers will be threatened if U.S. agricultural products flood the Indian market.

Key Developments

China’s Retaliatory Tariffs on U.S. Agricultural Imports

• As of March 10, China imposed duties on imports from the U.S., including:
  • Chicken, wheat, corn, cotton, sorghum, meat, soybeans, and dairy products.
  • The new tariffs followed the announcement of increased U.S. import duties on Chinese goods to 20%.

Gains to India

• Cotton is the only major Indian export that is likely to benefit.
• Soybes and wheat will lose out due to limited surpluses and export restrictions.
• Exports of agricultural products from India for FY24:
• China: $3.54 billion
• U.S.: $5.52 billion

Risk of U.S. Surplus Entering India

• U.S. farmers could export surplus (e.g., maize and soybeans) to India, thereby depressing prices for domestic products.
• From the other end, China cut back on imports from the U.S., down 14% in 2024 following a 20% drop in 2023.

Challenges for Indian Agricultural Exports

• Trade Barriers Globally
  • Developed countries apply non tariff measures in markets i.e. EU’s carbon tax; deforestation regulations, etc.)
• Structure of Challenges
  • Minimum integration into global value chains.
  • Indian high import duty further restricts export trade competitiveness.
  • Technology lag behind that of other countries.
  • Indian logistics cost: 8 9% vs. 5 6% in developed countries.

India’s capacity to benefit from the present agri export bargain due to the U. China given dynamics is however appallingly narrow; the primary beneficiary being cotton. On the other hand, the threat of U.S. surplus imports would be deleterious to half a dozen domestic farmers, especially on maize and soybeans. On top of that, continued imposition of trade barriers and logistics have crippled India’s competitive standing as an export player.

2. Benefits of the MSP

Context:

As the Union government and farmers debate over the legally assured Minimum Support Price, regarding a recent study conducted by the ICAR National Institute of Agricultural Economics and Policy Research (NIAP) regarding the unequal benefits of the Minimum Support Price.

The Limited Scope of MSP

• Only 15% of paddy farmers and 9.6% of wheat farmers avail of MSP enabled procurement.
• Small and marginal farmers, who form the majority of the country’s farming community, get disproportionately smaller benefits.

Large Farmers Dominate the MSP Procurement Part

• 31.3% of total paddy farmers and 23.5% of total wheat farmers sell in the market a big portion of their surplus through MSP.
• In contrast, only 10.5% of small paddy farmers and 4.5% of small wheat farmers are in the fold of MSP procurement.

The Productivity & Income Effects

• Farmers selling at MSP enjoy
  • Yield in paddy higher by 13.5%
  • Yield in wheat higher by 5%
• Better price realization for MSP than open markets
  • Paddy: 13.2% price over advantage
  • Wheat: 3.5% price advantage
• Total income increase
  • 23.2% higher in paddy cultivation
  • 9.6% income increase from wheat cultivation

Problems and Concerns

• The majority of MSP benefits are heavily skewed towards larger farmers who provide higher marketable surpluses.
• Small and marginal farmers become disadvantaged due to lack of access to procurement.

Policy Suggestions

The study recommends the following for an inclusive MSP:

• Increase in the reach of Price Deficiency Payment Scheme for price support.
• Targeted procurement of small and marginal farmers for equitable distribution.
• MSP access be widened so that all farmers categories enjoy the benefits.

Facts To Remember

1. Bangladesh: Chowdhury Rafiqul Abrar sworn in a 23rd Advisor, given charge of Education

In Bangladesh, Chowdhury Rafiqul Abrar, a retired Professor of Dhaka University’s International Relations (IR) Department, took oath as an adviser on Wednesday, expanding the advisory council of the interim government.

2. NITI Ayog releases strategic paper on implication of quantum computing on national security

Niti Aayog today released a strategic paper on the rapid evolution of quantum computing and its implications on national security in New Delhi. NITI Frontier Tech Hub (NITI-FTH), in partnership with the Data Security Council of India, released the paper with the aim of accelerating the country’s transition into a Frontier Tech Nation.

3. Cabinet approves 𝐫𝐨𝐩𝐞𝐰𝐚𝐲 𝐩𝐫𝐨𝐣𝐞𝐜𝐭s, Revision of Livestock Health and Disease Control Programme

The government has approved the development of the Sonprayag to Kedarnath ropeway with a length of 12.9 kilometres. Briefing media in New Delhi today, Information and Broadcasting Minister Ashwini Vaishnaw said, the total cost of the project will be over four thousand crore rupees.

4. Govt launches Model Women-Friendly Gram Panchayat initiative in New Delhi

Minister of State for Panchayati Raj Prof. S. P. Singh Baghel and Minister of State for Health and Family Welfare Anupriya Patel today launched the Model Women-Friendly Gram Panchayat initiative of the Ministry of Panchayati Raj at a National Convention in New Delhi. 

5. Arab leaders adopt Egypt’s Gaza reconstruction plan

Arab leaders have approved a 53 billion dollar reconstruction plan for Gaza, that aims to avoid displacing Palestinians from the enclave. The plan was accepted at the closing of the emergency Arab summit in Cairo yesterday with full support from participating Arab leaders. Egyptian Foreign Minister Badr Abdelatty said that the plan includes the establishment of a seaport and an airport in the Gaza Strip and the recycling of the rubble left by the destruction in Gaza.