20TH NOVEMBER,2020 : MOST POWERFUL DAILY CURRENT AFFAIRS CONCEPTS

UPSC PRELIMS+MAINS  

A) Economic Developments: India and World

1. Municipal Bonds and its Types (IE)

  • Context: As per the new rules, municipal bonds will now be offered not only to financial institutions but also to the public which will be listed on stock exchanges.

Analysis

  • Municipal bonds are fixed income instruments, ie., debt securities issued by government or semi-government institutions who need funding for civic projects.
  • The market regulator has mandated that the municipal bonds must have a rating above the investment-grade for the public issue.

Types of municipal bonds

  • There are two types of municipal bonds —general obligation bonds and revenue bonds.
  • General obligation bonds are issued for enhancing civic amenities such as water, sanitation, garbage disposal, etc.
  • Revenue bonds are issued for a specific purpose such as construction of a toll road or a toll bridge.
  • Repayment of interest and principal is made from the cash flow generated from the project for which it is issued.

How big is the market?

  • Municipal bonds have been in the market since 1997 (Bangalore Municipal Corporation is the first urban local body to issue municipal bonds in India).
  • The Ahmedabad Municipal Corporation, in 1998, was the first to make a public offering.
  • In 2017, the Pune Municipal Corporation (PMC) became the first local body in the country to issue these in nearly 15 years, raising Rs 200 crores for the Smart City project.
  • Indore recently becoming the first city to list municipal bonds on the National Stock Exchange (NSE).
  • As these bonds were privately placed and the participants are financial institutions and pension funds, these were not tradable.
  • private placement is a sale of stock shares or bonds to pre-selected investors and institutions rather than on the open market.
  • SEBI had circulated detailed guidelines for urban local bodies (ULBs) in 2015 to raise funds by issuing municipal bonds.
  • The municipality must not have a negative net worth in each of the three previous years.
  • The issuer (municipal corporations) should get the bonds rated by credit rating agencies.
  • There should be no default in any kind of loan in the past one year and it must maintain full collateral/asset cover to repay the principal amount.
  • For revenue bond, the revenue generated from the project should be kept in a separate escrow account and financial institutions would monitor their accounts regularly.
  • In India, the share of municipal bonds in the total debt market is nonetheless insignificant; only 1 per cent of urban bodies financial needs are met through municipal bonds as opposed to 10 per cent in the US.
  • This is because the municipal bonds in the debt market have poor ratings.
  • The municipal bond market has not garnered interest from banks, foreign portfolio investors or local investors due to a lack of adequate disclosure among Indian municipalities.
  • To rectify this, the Ministry of Housing and Urban Development is compiling a database of audited annual accounts in line with international standards for local bodies for the first time.
  • In Smart Cities Mission (SCM), it was envisaged that Centre/State/ULB funds will meet only a part of the project cost and balance funds are expected to be mobilised from various innovative finance mechanisms such as municipal bonds with credit rating of ULBs.
  • Under the government’s smart city initiative, Special Purpose Vehicles (SPVs) have been set up at city level in the form of a limited company under the Companies Act for implementing the projects. They are promoted by the state government or union territory and the urban local body of the area.
  • The amended regulations would also permit raising funds through municipal bonds by SPVs set up for implementing smart city projects.
  • In case of private placements, the minimum subscription amount per investor was currently clocked in at Rs 25 lakh, but has now been reduced to Rs 10 lakh to align it with the regulations for corporate bonds.
  • Under the Atal Mission for Rejuvenation and Urban Transformation (AMRUT) scheme, cities have been encouraged to mobilize resources by issuing municipal bonds.
  • These are issued when a government body wants to raise funds for infra-related projects like roads, water among others.

FPIs get RBI nod to invest in municipal bonds (IE)

  • The Reserve Bank of India in April 2019 further eased norms for foreign portfolio investors (FPIs) by allowing them to invest in municipal bonds under prescribed limits to broaden access of non–resident investors to debt instruments in India.
  • The limits for investing in these municipal bonds are to be set within the limits for FPI investment in state development loans (SDLs).
  • The limits set for SDLs generally amount to 2 per cent of outstanding securities.
  • Investing in municipal bonds in India is not a popular opinion as majority municipalities are not cash rich.
  • But if FPIs start investing in these bonds, the domestic players also might find interest and also could prove to be a good income source for municipalities.
  • The central bank had in March 2019 eased norms by introducing the voluntary retention route (VRR), allowing FPI investments through the route free of regulatory norms provided they maintain a share of their investments for a fixed period.
  • In February 2019, the RBI also withdrew its April 2018 regulation, wherein no FPI was allowed an exposure of more than 20 per cent of its corporate bond portfolio to a single corporate.
  • FPIs have been investing in various debt market instruments, such as government bonds, state development loans and corporate bonds, but with prescribed limits and restrictions by the central bank.

Are municipal bonds the best/viable alternative available? What are the other sources through which SPVs can raise money for smart city projects?

  • Other than municipal bonds, there are various innovative fiscal tools, such as Value Capture Financing (VCF) that are currently being explored by state/local governments, many of which have also been in existence for a few years.
  • Some VCF methods that can be adopted or have been in place for the past few years are: land value tax, vacant land tax, fees for changing land use, betterment levy, development charges, transfer of development rights (TDRs), premium on relaxation of FSI/FAR, tax increment financing (TIF), land acquisition and development, land pooling system (LPS), among others.
  • The most recent is the government’s proposal to set up a new DFI (Development Finance Institution), to principally fill the gap in long-term finance.
  • Most urban local bodies do not have the institutional agency to raise funds, systemise accounting, and put up bankable projects.
  • In order to address this, the reforms enlisted in the 15th Finance Commission (which makes it mandatory for urban local bodies to submit audited accounts by linking them to grant disbursement) must be implemented.

2. Global Depository Receipt (GDR) (TH)

  • Context: India Luxemberg Summit was the first bilateral summit in two decades between the 2 nations.
  • Luxembourg is one of the most important financial centres globally.
  • Several Indian companies have raised capital by issuing Global Depositary Receipts at the Luxembourg Stock Exchange.

Analysis

  • Global Depository Receipt (GDR) is an instrument in which a company located in domestic country issues one or more of its shares or convertibles bonds outside the domestic country.
  • In GDR, an overseas depository bank i.e. bank outside the domestic territory of a company, issues shares of the company to residents outside the domestic territory.
  • Such shares are in the form of depository receipt or certificate created by overseas the depository bank.
  • Issue of Global Depository Receipt is one of the most popular ways to tap the global equity markets.
  • A company can raise foreign currency funds by issuing equity shares by way of GDRs in a foreign country.
  • A company based in Bangalore, India willing to get its stock listed on German stock exchange can do so with the help of GDR.
  • This India based company shall enter into an agreement with the German depository bank, who shall issue shares to residents based in Germany after getting instructions from the domestic custodian of the company.
  • The shares are issued after compliance of law in both the countries.
  • GDRs can be denominated in any freely convertible currency.
  • GDRs are also known as international depository receipt (IDR).
  • Global Depository Receipt (GDR) issued in US are known as American Depository Receipts (ADR)
  • They will be called Indian Depository Receipts if they are issued in India on the basis of the shares/securities of the foreign company.
  • Companies issue GDRs to attract interest from foreign investors.
  • GDRs enable a company, the issuer, to access investors in capital markets outside of its home country.
  • GDR is a negotiable security that can be traded on the stock exchange, if so desired.
  • In India any company – whether private limited or public limited or listed or unlisted – can issue GDRs. However listed DRs enjoy some tax benefits.
  • GDR is denominated in any foreign currency but the underlying shares would be denominated in the local currency of the issuer.
  • The holder is entitled to dividend and bonus on the value of shares underlying the GDR.
  • GDRs provide a lower-cost mechanism in which these investors can participate and rules of the Domestic Market regulator (Securities and Exchange Board of India in case of an Indian Company issuing GDR) won’t apply to them.
  • For more details, refer to 4th April file.

B) Science and Technology/Defence/Space

3. How to check if the mustard oil you consume is adulterated or not? (IE)

  • Context: MyGovIndia shared a simple hack to test whether the mustard oil in your kitchen is adulterated with argemone oil or not.

Analysis

  • Argemone oil is extracted from argemone seeds. Reports have shown that it is often mixed with oil to increase the quantity.
  • In humans, argemone oil contained in adulterated mustard oil can lead to what is known as epidemic dropsy.
  • It causes “oxidative stress and death of red blood cells via met-hemoglobin formation by altering pyridine nucleotide(s) and glutathione redox potential.”

How to test if mustard oil is adulterated

  • Take a sample of 5 ml mustard oil in a test tube.
  • Add 5 ml of nitric acid to the test tube.
  • Shake the tube gently.
  • If the mustard oil is unadulterated, it will show no colour change in the acidic layer.
  • In the case of adulterated mustard oil, an orange-yellow to red colour is developed in the acidic layer.
  • The intensity of colour formed is due to the formation of sanguinarine nitrate.

RuPay card Phase-II in Bhutan

  • The Prime Ministers of India and Bhutan had jointly launched Phase-I of the project in August 2019.
  • The implementation of Phase-I of RuPay cards in Bhutan has enabled visitors from India to access ATMs and Point of Sale (PoS) terminals across Bhutan.
  • Phase-II will now allow Bhutanese card holders to access RuPay network in India.

C) Agriculture, Geography, Environment and Biodiversity

4. Migratory Birds in India (TH)

  • Context: The willow warbler (Phylloscopus trochilus), one of the longest migrating small birds that breeds throughout northern and temperate Europe and the Palearctic, has been sighted for the first time in the country in Thiruvanathapuram.

Analysis

  • The bird weighs around 10 g and it has long wing feathers that help it fly long distances.
  • Usually seen in European and the Palearctic regions, the birds migrate to sub-Saharan Africa during early winter.
  • Warblers are generally difficult to identify owing to the small size and change in plumage twice a year.
  • They are also the most difficult groups of birds to identify in the field for their striking resemblance to each other.

Biodiversity hotspot

  • The Vellayani-Punchakkari paddy fields are a birding hotspot on the outskirts of Thiruvananthapuram.
  • It is known to harbour more than 213 species of birds that include both resident and migratory ones.

Some of the most iconic Migratory Birds of India

  • Plenty of birds seek refuge from either the cold in the North or the heat in the west and the south, and the climate of India provides the perfect escape from both.

I- The Winter Birds

1. Siberian Cranes

  • An endangered species.
  • While it nests in western Siberia throughout the year, the cranes undergo a 4,000 miles journey to India every winter to escape the deathly cold and lack of food in the Siberian regions.
  • The cranes can be spotted mainly at two places: the Kaladeo Ghana National Park or the Bharatpur National Park, which has since been declared a world heritage site because the Siberian Crane traverses nearly half of the globe to reach it.
  • However, in the recent past, things have drastically changed. The once regular visitors have started making sporadic appearances in the past decade or so – sometimes, disappearing for very long spells.
  • Overpopulation, extreme weather changes and hunting are major contributors to this phenomenon.

2. Greater Flamingo

  • Of the six species of flamingos in the world, two occur in both Africa and India: the Lesser Flamingo (Phoeniconaias minor) and the Greater Flamingo (Phoenicopterus roseus).

3. Ruff

 

  • The Ruffs are birds of the Arctic Tundra region.
  • Although they spend the summer months breeding and rearing chicks, the winters pose a huge problem altogether as hell freezes over.
  • One of their preferred destinations is India, where they can find food in abundance for the growth of their young ones.
  • However, once the breeding season comes around again they move back to the Tundra to repeat the cycle all over again.

4. Northern Shoveler

  • These are the residents of Europe and Northern Asia.
  • A huge population of these birds, which spends its winters in the Indian Subcontinent makes a taxing journey over the Himalayas, often taking a break in wetlands just south of the Himalaya before continuing further south to India.
  • The birds, which reside in marshy wetlands in the north, have seen a tremendous rise in its population in the past four decades, numbering over four million today.

5. Rosy Pelican

 

  • They Journey from Europe To North India.
  • Pelicans are known to possess gigantic beaks – yet, the Rosy Pelican is known for its gigantic wingspan too, which stretches close to 12 feet in length.
  • Like other winter migratory birds, the Rosy Pelican migrates to the north of India, settling down in shallow, fresh water lakes with plenty of fish.

6. Gadwall

 

  • They Journey from Europe & North America to Bhopal, India.
  • Gadwall generally prefers freshwater reedy marshes, jheels and other such low water bodies.
  • Image source: cyclingtheworldforbirds.blogspot.com

7. Black-tailed Godwit

 

  • The black-tailed godwits spend their summers in Iceland or Russia – where they breed, eat and raise their young.

8. Spotted Redshank

 

  • They Journey from Scandinavia to Haryana.
  • The tiny Spotted Redshank needs a moderate temperature and tropical conditions, as well as wet coniferous forests for its nests. Therefore, the period after monsoons in India is perfect for their survival.
  • The females the eggs and leave India to return to Scandinavia while the young ones hatch in India itself and are taken care of by the males. After the birds grow enough, they too return to Europe.

9. Bluethroat

 

  • They Journey from Europe & Alaska to Rajasthan.
  • An excellent mimic, the bluebird is known to answer calls of other birds, while having a melodious originality in its own voice.

II- The Summer Soarers

1. Asian Koel

 

  • “Koel jaisa meetha sur” is a term we grew up hearing. However, what few people know is that the Asian Koel is not indigenous to India – it migrates from Singapore every year.
  • With its mesmerising voice and perpetually bloodshot eyes, the bird is a brood parasite – it lays its eggs in the nests of other birds.
  • In India, the victim is the poor crow, whose nests the Koel invades. The reason for the Koel’s migration, believe it or not, is unique too.
  • The summers in Singapore and its surrounding tropical areas is “too hot” for the Koel and so it migrates to India to get a “cool” climate as well as considerable food! The migratory brood parasite, which leaves India during the winters, is also the state bird of Pondicherry.

2. Black-crowned Night Heron

 

  • The Journey from Argentina, Chile & China to the Bengal region of India.

3.  Eurasian Golden Oriole

 

  • They Journey from Europe and Africa to India.
  • Oriole is known for its striking features and distinct cry – something, which people say, cannot be forgotten once heard.

4. Comb Duck

 

  • The Journey: From Madagascar & South Asia to Haryana.

5. Blue-cheeked Bee Eater

  • The Journey: From Africa and parts of Europe to peninsular India.
  • Although its name might suggest otherwise, but the Bee Eater’s favourite food is the Indian dragonfly.
  • For “Amur Falcons: ‘Birds of God’ and the Convention on Migratory Species (CMS)” refer 27th Oct file.
  • For “Lesser Flamingo Vs Greater Flamingo, Flamingo city, Shravan Kavadia and Biodiversity Heritage Sites (BHS)” refer 11th Oct file.

5. Miyawaki afforestation method (TH)

  • Context: The ‘Nandavanam’ project, carried out in collaboration with the Sri Ranganathaswamy Temple, is one of several urban ‘green islands’ that have been initiated in Tiruchirappalli City using the Miyawaki afforestation method recently.
  • Japan-inspired Miyawaki forests emerge as a popular solution to restoring degraded habitats in India.

Analysis

Miyawaki afforestation method

  • Miyawaki is a technique pioneered by Japanese botanist Akira Miyawaki, that helps build dense, native forests.
  • The approach is supposed to ensure that plant growth is 10 times faster and the resulting plantation is 30 times denser than usual.
  • It involves planting dozens of native species in the same area, and becomes maintenance-free after the first three years.
  • This method does not use any chemicals like pesticides or inorganic fertilisers.
  • Pests are left undisturbed for the forest to slowly build its own mechanism to keep itself healthy.
  • Forest is never cut or pruned as it is considered to make the forest weaker.

6. The concepts of Urban Heat Island and Albedo (TH)

  • Urban Heat Islands (UHIs) are meteorological impacts of urbanization that cause the air temperature in urban areas to be higher compared to their surrounding non-urban areas.
  • Under proper conditions, UHI effect may be up to 10-15ºC.
  • As cities grow due to urbanization, natural elements such as urban green space (UGS) are replaced by high thermal admittance materials which enable the storage of more solar energy, leading to an increase of the surrounding air temperature once it is re-emitted.
  • Absorption of solar radiation is due to low albedo of the urban areas.
  • In case of low vegetation and/or water body in urban areas, solar energy is directly converted into sensible heat instead of latent energy for evapotranspiration and chemical energy in photosynthesis.
  • This will increase the air temperature, resulting in higher urban temperatures during the evenings and nights compared to those in surrounding non-urban areas with high vegetation.

 

Heat islands occur on the surface and in the atmosphere

  • Surface urban heat islands are typically present day and night, but tend to be strongest during the day when the sun is shining.
  • In contrast, atmospheric urban heat islands are often weak during the late morning and throughout the day and become more pronounced after sunset due to the slow release of heat from urban infrastructure.

Urban areas are cooler than non-urban areas during heat waves (source: The Hindu)

  • A study of urban areas in India has found that though there is an absolute increase in temperature during heat waves in both urban and non-urban areas, the urban areas are relatively cooler than the surrounding non-urban areas during heat waves.
  • However, during the night, all urban areas were hotter than the surrounding non-urban areas.
  • The urban areas witness less temperature increase during heat waves compared with non-urban areas due to significantly higher tree cover and more number of water bodies.
  • In contrast, a majority of non-urban areas are located in agriculture-dominated regions.
  • In non-urban areas, the vegetation cover in the form of crops and soil moisture from cropland irrigation decline sharply after crops are harvested and well before the onset of heat waves during summer.
  • The urban areas, on the other hand, have perennial vegetation in the form of tree cover and lawns, and more number of water bodies, which help in keeping the urban areas relatively cooler than non-urban areas.

Green Islands

  • Green Islands include planting trees and other vegetation in urban areas-creating space with densely populated native species (Miyawaki method) in grassy or barren areas, vacant lots.

The concept of Albedo

  • Albedo is a measure of how much light that hits a surface is reflected without being absorbed.
  • The albedo value ranges from 0 to 1. The value of 0 refers to a blackbody, a theoretical media that absorbs 100% of the incident radiation.
  • The value of 1 refers to an ideal reflector surface (an absolute white surface) in which all the energy falling on the surface is reflected.
  • The lower the albedo, the more a surface absorbs heat from sunlight rather than reflecting it back to space.
  • The albedo of snow cover, especially the fresh, deep snow, can reach as high as 0.9.
  • Sea ice prevents sunlight from penetrating to the waters below not so much because of its solidity but because of its albedo — the relative whiteness of the ice surface, which determines the degree to which it reflects or absorbs incoming solar radiation.
  • The approximated ranges of albedo of natural surfaces: Forest 0.05–0.2; Grassland and cropland 0.1–0.25; Soil 0.1–0.45; Glacial ice 0.3–0.4.

Natural surface types Approximated albedo

  • Blackbody: 0
  • Forest: 0.05–0.2
  • Grassland and cropland: 0.1–0.25
  • Dark-colored soil surfaces: 0.1–0.2
  • Dry sandy soil: 0.25–0.45
  • Dry clay soil: 0.15–0.35
  • Sand: 0.2–0.4
  • Mean albedo of the earth: 0.36
  • Granite: 0.3–0.35
  • Glacial ice: 0.3–0.4
  • Light-colored soil surfaces: 0.4–0.5
  • Dry salt cover: 0.5
  • Fresh, deep snow: 0.9
  • Water: 0.1–1
  • Absolute white surface: 1

D) Schemes/Policies/Initiatives/Awards/Social Issues

7. Steel Clusters and Purvodaya Initiative (PIB)

  • Context: The Ministry of Steel has prepared a draft framework policy for development of steel clusters in the country.

Analysis

  • The draft framework policy for development of steel clusters is aimed at facilitating setting up of greenfield steel clusters along with development & expansion of existing steel clusters.
  • The steel clusters shall not only help the country become Atma Nirbhar in value added Steel and capital goods but would also generate employment, especially in the Eastern part of the Country covering the States of Chhattishgarh, Jharkhand, West Bengal, Orisha and Andhra Pradesh as part of the “Purvodaya” initiative of the Ministry of Steel.
  • In January 2020, ‘Mission Purvodaya’ was launched which aims at accelerated development of eastern India through integrated steel hubs.
  • The proposed Integrated Steel Hub, encompassing Odisha, Jharkhand, Chhattisgarh, West Bengal and Northern Andhra Pradesh, would serve as a torchbearer for socio-economic growth of Eastern India.

Ispati Irada

  • Ministry of Steel has launched a collaborative branding campaign ‘Ispati Irada’ with the objective of promoting appropriate steel usage in the country.
  • This aims to leverage usage of steel as an easy-to-use, environment-friendly, cost-effective, affordable and strength-giving material.
  • Despite being the world’s second largest producer of steel, India’s annual per capita steel consumption is 74.1 kg and is one-third the global average (224.5kg).

India’s energy strategy

  • India is now the third-largest energy consuming country in the world.
  • Seven key pillars of India’s energy strategy include:
  • accelerating efforts to move towards a gas-based economy,
  • cleaner use of fossil fuels,
  • greater reliance on domestic fuels to drive biofuels,
  • achieving the renewable energy target of 450 gigawatts (GW) by 2030,
  • increasing the contribution of electricity to decarbonise mobility,
  • moving into emerging fuels like Hydrogen and
  • digital innovation across all energy systems.

E) International Relations

8. India-Luxembourg Summit (TH)

  • Context: India-Luxembourg Summit, the first in last two decades, will be an opportunity to lay the platform for cooperation between Delhi and the European nation in a post-COVID world.

Analysis

  • Luxembourg is the third largest source of Foreign Portfolio Investments (FPI) investments in India after US and Mauritius accounting for approximately 8.5% of these investments.
  • Luxembourg’s importance stems from it being one of the founding members of the European Union (EU) as well as one of the three official headquarters to the EU’s institutions along with Brussels and Strasbourg.
  • Luxembourg is the 5th largest investor from the EU after the Netherlands, Germany, France, Cyprus and the 15th largest investor in India.
  • Since July 2014, Luxembourg’s cumulative investment in India has more than doubled – from USD 1.088 billion to USD 3.082 billion (March 2020).
  • India and Luxembourg have a longstanding cooperation in the Steel sector.
  • Luxembourgish company Paul Wurth has been in India for the last two decades and playing an important role in upgrading the steel sector in India.
  • ArcelorMittal, the world’s largest steel-producing company, is based out of Luxembourg and recently entered into a joint-venture (JV) in India partnering with Nippon Steel (Japan’s biggest steel-producer) as AM/NS India.
  • Luxembourg is one of the most important financial centres globally.
  • Several Indian companies have raised capital by issuing Global Depositary Receipts at the Luxembourg Stock Exchange.
  • Luxembourg Stock Exchange was the first stock exchange globally to list Masala Bonds in 2008.
  • Luxembourg and India have vibrant cooperation in space sector (Kleos Scouting Mission).
  • Kleos Space S.A. is a Luxembourg-based space-powered Radio Frequency Reconnaissance (RF) data-as-a-service (DaaS) company based in Luxembourg.
  • Kleos Space aims to guard borders, protect assets and save lives by delivering global activity-based intelligence and geolocation as a service.
  • The first Kleos Space satellite system, known as Kleos Scouting Mission (KSM), will deliver commercially available data and perform as a technology demonstration. KSM will be the keystone for a later global high capacity constellation.
  • The Scouting Mission will deliver targeted daily services with the full constellation delivering near-real-time global observation.
  • Recently, four satellites of the Mission were launched on the Indian Space Research Organisation’s (ISRO) PSLV-C49 Mission in November 2020 under a commercial arrangement with NewSpace India Limited (NSIL), a Government of India company under the Department of Space.
  • Masala Bonds, FDI Vs FPI and Coalition for Disaster Resilient Infrastructure (CDRI) though already shared but quite a long time has been passed and these will undergo a through update before resharing with you.

9. Joint Comprehensive Plan of Action – US Iran Nuclear Deal (TH)

  • Context: Iran says, it will “automatically” return to its nuclear commitments if U.S. President-elect Joe Biden lifts sanctions imposed over the past two years.
  • S. reinstated the sanctions on Iran in November 2018 after abandoning a landmark 2015 nuclear deal between Iran and six world powers.

Analysis

Iran nuclear deal

  • Also called Joint Comprehensive Plan of Action.
  • It was signed in 2015 between Iran and the P5+1 group of world powers – the US, UK, France, China, Russia and Germany.

Why this Nuclear deal?

  • It came after years of tension over Iran’s alleged efforts to develop a nuclear weapon.
  • Iran insisted that its nuclear programme was entirely peaceful, but the international community did not believe that.

What was agreed?

  • Under the accord, Iran agreed to limit its sensitive nuclear activities and allow in international inspectors in return for the lifting of crippling economic sanctions.
  • The deal caps for 15 years the level of purity to which Iran can enrich Uranium at 3.67% far below the 90% needed to produce weapons.

Why did U.S. Pull Out of the Deal?

  • S. recently pulled out of the Iran Nuclear Deal and reimposed sanctions on Iran’s energy, ship building, shipping, and banking sectors, which U.S. considers “the core areas” of its economy.
  • S. hopes to compel Iran to negotiate a “new deal” that would cover not only its nuclear activities, but also its ballistic missile programme and what U.S. officials call its “malign behaviour” across the Middle East.
  • The sanctions have led to a sharp downturn in Iran’s economy, pushing the value of its currency to record lows, quadrupling its annual inflation rate, driving away foreign investors, and triggering protests.

If U.S. puts economic sanctions on Iran again, then the implications on India would be:

  • Energy imports from Iran will become difficult and
  • Fuel prices will go up (due to decrease in the availability of oil in the international market as Iran would not be able to sell it).
  • The Reserve Bank of India might have to increase interest rates to contain inflation (inflation will increase as the cost of oil per barrel will increase) and step in to check the fall in the rupee’s value (rupee’s value will fall as India have to give more rupees to buy dollars).

Implications for India – a deeper analysis

  • New Delhi is likely to comply with American demands, as India’s relations with the U.S. in the economic sphere are very important to it.
  • The U.S. is India’s largest trading partner and a leading source of foreign investment.
  • It has become increasingly important in the strategic arena as well because of the convergence of American and Indian interests regarding containing China in the Indo-Pacific region.
  • Moreover, the civil nuclear relationship with the U.S. is very important for India, as is American support for India’s bid to enter the Nuclear Suppliers Group.
  • However, compliance with the American diktat will not come without costs.
  • India is heavily involved in building the Chabahar port in southern Iran. This port is expected to become a major access route for India not only to Iran but also to Afghanistan and Central Asia bypassing hostile Pakistani territory.
  • Tehran is also important for New Delhi in the context of Afghanistan as both are unequivocally opposed to the Pakistan-supported Taliban returning to power even in a power-sharing arrangement.
  • Furthermore, Iran shares India’s antipathy toward Pakistan, which it considers Washington’s proxy and Saudi Arabia’s ally.
  • India’s decision to stop importing oil from Iran at America’s behest could drive a wedge between New Delhi and Tehran that will be very difficult to repair and cost India strategically.

Effects on Iran

  • The most important question is whether Iran will capitulate to the American threat of cutting oil imports down to zero and accept Washington’s demand to revise its position on issues the U.S. considers important.
  • These include Tehran totally giving up its right to enrich uranium and closing down all nuclear facilities including those engaged in research for peaceful purposes.
  • Additionally, it would entail Iran drastically curtailing if not completely eradicating its ballistic missile programme, and radically changing its West Asia policy to fall in line with American preferences in Syria, Iraq, Lebanon and Yemen.
  • However, this appears to be a Washington pipe dream. Iran has stood up to unprecedented sanctions for four decades and remained unbowed.
  • The current American policy of forcing Tehran to cut its oil exports to zero will only aid Iranian hardliners and end up with Tehran adopting an even more virulent anti-American posture, further impeding the realisation of American strategic objectives in the region.

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