Context: The U.S. Securities and Exchange Commission (SEC) has sought assistance from the Union Law Ministry of India under the Hague Service Convention to serve summons to Gautam Adani and his associates in a securities fraud case.
Relevance of the Topic:Prelims: Key facts about SEC; Hague Service Convention
About Hague Service Convention
The Hague Service Convention is formally known as the Convention on the Service Abroad of Judicial and Extrajudicial Documents in Civil or Commercial Matters (1965).
It is an international treaty that standardises the process of serving legal documents across borders.
Key features of the Hague Service Convention
Established in 1965 to standardise the service of judicial and extrajudicial documents across borders.
Purpose:
To facilitate the service of judicial and extrajudicial documents in civil and commercial matters between signatory countries.
To ensure timely and actual notice of legal proceedings for defendants in foreign jurisdictions.
Central Authority: Each member country designates a Central Authority to receive and process service requests.
It has been signed by 84 states, including India and the U.S.
It is applicable only when both the sending and receiving countries are signatories.
Modes of transmission vary by country but generally include:
Primary method: Service through the designated Central Authority.
Alternative channels: Diplomatic/consular service, postal service (if permitted), direct service by judicial officers, or direct contact between government authorities.
Service of Process in India
India acceded to the Convention on November 23, 2006, with expressly opposing all alternative service methods under Article 10.
India opposes all alternative service methods, including postal service, except for nationals of the requesting country.
Service must be done exclusively through the Ministry of Law and Justice (India’s Central Authority).
Requests must be in English or accompanied by an English translation.
India’s Central Authority can reject a service request under Article 13 if it compromises sovereignty or security but not based on exclusive jurisdiction claims.
The service process typically takes 6 to 8 months and is treated as an Indian court summons under Section 29(c) of the Code of Civil Procedure, 1908.
Judicial Precedents on Alternative Service Methods
Federal Trade Commission v. PCCare247 Inc. (2013) (U.S.):
It allowed service in India via Facebook and email, arguing these methods were not explicitly objected to under Article 10.
Punjab National Bank (International) Ltd. v. Boris Shipping Ltd. & Ors. (2019) (UK):
Rejected alternative service methods, ruling that service must comply with India’s designated procedure under the Convention.
Rockefeller Technology Investments v. Changzhou SinoType Technology Company (2020) (U.S.):
Ruled that contractually agreed service methods can override a state’s objections under Article 10.
Default judgments under the Convention
A default judgment may be issued under the Convention if a foreign government refuses to cooperate in serving summons on a defendant residing within its jurisdiction.
Article 15 allows a default judgment if:
The document was transmitted using a Convention-approved method.
At least six months have passed without service confirmation.
The court deems that all reasonable efforts were made to obtain proof of service.
India allows default judgments even without a service certificate, provided Article 15 conditions are met.
Duong v. DDG BIM Services LLC (2023) (U.S.): The U.S. court acknowledged Article 15 as a safety valve, allowing default judgment when India’s Central Authority fails to process service requests efficiently.
Context: India has resumed trade negotiations with the UK and the EU, amidst global trade uncertainties exacerbated by the US's tariff threats under President Donald Trump.
Context: Agricultural goods receive high protection in India and have largely remained outside trade agreements. India is considering a range of items for tariff reductions on US products, however, the United States is particularly interested in reduction of tariffs in the agricultural sector to export more agricultural goods to India.
Relevance of the Topic: Prelims: Key trends in the US-India Trade relations.
India-US trade in Agricultural products
High protection in India:
India has traditionally maintained high tariffs on agricultural imports to protect its domestic farming sector, which is highly sensitive and politically significant.
Despite tariff reductions on select products in recent Union Budgets, agriculture remains a protected sector.
US Agricultural export interests:
The American agricultural sector (especially in the Midwest) forms a key voter base for former President Donald Trump, influencing US trade policies.
Increasing agricultural exports is an offensive interest for the US, aiming to support domestic farmers and strengthen economic ties.
Tariff rates comparison:
India’s average applied Most Favoured Nation (MFN) tariff on agricultural goods: 39%
The US average applied MFN tariff on agricultural goods: 5%
Implications:
High Indian tariffs on agricultural products lead to trade imbalances and hinder the growth of US exports to India.
The disparity prompts US demands for reciprocal tariff reductions, which could potentially benefit both sides through enhanced trade volumes.
Lowering tariffs could improve the market access for Indian agricultural goods in the US.
Enhanced access could particularly benefit sectors like basmati rice, processed foods, and spices.
Sectoral vulnerabilitiesin Indian agriculture from US Reciprocal Tariffs (As per GTRI Report):
Seafood (Fish, Meat, Processed Seafood):
Exports worth $2.58 billion face a 27.83% tariff differential.
Shrimp, a key export item, is likely to lose competitiveness in the US market.
Processed Foods, Sugar, and Cocoa:
Exports worth $1.03 billion affected by a 24.99% tariff increase.
Indian snacks and confectionery products will become costlier and less attractive to US consumers.
Edible Oils: Coconut and mustard oil exports valued at $199.75 million face a 10.67% tariff increase.
Alcohol, Wines, and Spirits: Exports of $19.20 million affected by a steep 122.10% tariff hike.
Live Animals and Animal products: $10.31 million in exports face a 27.75% tariff differential.
Tobacco and Cigarettes: Despite a high US tariff of 201.15%, Indian exports worth $94.62 million remain largely unaffected due to an already negative tariff differential (-168.15%).
United States - Mexico - Canada Agreement (USMCA):
Signed during Trump’s tenure to replace North American Free Trade Agreement (NAFTA) and expand the US agricultural market access.
Key Provisions:
Removal of Canadian Class 6 and 7 milk pricing programs to prevent undercutting of US dairy prices.
Reforms in Canada’s wheat grading system to ensure fair competition for US wheat growers.
Impact: Significant increase in the US dairy and wheat exports to Canada.
US-China Trade Deal (2020-2021):
Focused on boosting US agricultural exports amid the trade war.
Key Provisions:
China agreed to purchase US agricultural products worth $12.5 billion above the 2017 baseline in 2020 and $19.5 billion above the same baseline in 2021.
Removal of non-tariff barriers, such as lifting age restrictions on US beef imports.
Outcome: Enhanced market access and increased agricultural trade between the two economies.
Context: India is pushing for the trade deal with EFTA. Also, EFTA nations Switzerland and Liechtenstein are pushing for a Bilateral Trade Agreement with India.
Relevance of the Topic: Mains: Dynamics of India-EFTA trade.
About India-EFTA TEPA
India signed a free trade agreement (FTA) with four European countries — Iceland, Liechtenstein, Norway, and Switzerland (European Free Trade Association countries) in March 2024.
This positions EFTA as the first European bloc to formalise a trade pact with India.
Key Highlights of the Agreement:
Investment commitments: EFTA nations have pledged to invest $100 billion in India over 15 years.
Tariff reduction: EFTA removes and reduces tariffs on several products like renewable energy and pharmaceutical goods.
Technology transfer: EFTA countries agree to share technology expertise in the field of precision engineering, pharmaceuticals, financial services and renewable energy.
Sustainable development progression: EFTA includes clauses to promote green technology, clean energy and responsible business practices.
Present status of TEPA:
The agreement was signed in March 2024, but has a pending ratification by all the participating nations. TEPA is expected to come into force by the end of 2025.
Inauguration of India-EFTA Desk:
India-EFTA Desk will function as a single-window mechanism to provide support to EFTA businesses looking to invest, expand, or establish operations in India.
It will serve as the primary channel for fostering continuous business-government dialogue.
Over 100 EFTA companies have visited India to explore business opportunities. E.g., Swiss pharmaceutical giants like Novartis and Roche are planning to expand manufacturing in India.
Scopes and benefits for India:
Export growth: It is expected to boost Indian exports in pharmaceuticals, textile, jewelry, IT services sector.India’s textile and garment industry is expected to gain a 10-15% increase in exports.
Boost FDI: Expected $100 billion investment over 15 years in India will foster foreign direct investment in India, enhancing the infrastructure and industrial capabilities.
Job creation: TEPA is expected to create 1 million jobs by the investment by EFTA firms.
Strengthen Make-In-India: EFTA led investment will support Make in India initiative, by supporting domestic manufacturing and high-quality goods.
E.g., Norwegian firms partnering with India for solar energy expansion are promoting the Make in India Solar panels.
Buffer against US tariffs: India is likely to face tariffs from the US, TEPA will create a buffer for India against the possible US tariffs.
US has imposed a 25% tariff on steel to prevent dumping, TEPA will enhance the alternate destinations for the Indian steel.
Advantages to EFTA countries:
EFTA countries will benefit from elimination or reduction of import duties by India on a large number of industrial goods, which include pharmaceutical products, machinery, watches, fertilizers, medicines, chemical products, minerals and fish.
Exclusion list: However, sectors such as dairy and coal and sensitive agricultural products have been kept in the exclusion list, which means there would not be any tariff cuts by India on these.
Help EFTA countries diversify their supply chains and render them more resilient.
Constraints in the Agreement
IPR concerns: EFTA firms emphasise stringent Intellectual Property Rights (IPR) norms, which raises concerns for the Indian companies, particularly pharma sector.
E.g., Indian Pharma companies worry that strict patent laws will limit their ability to produce low-cost generic drugs.
Regulatory challenges: EFTA countries maintain high standards and strict food safety norms. Indian agriculture and dairy exporters may face challenges in meeting the strict criteria.
Trade deficit concerns: India imports high-value goods like luxury watches, advanced machinery from EFTA countries, which can potentially widen India’s trade deficit.
Bilateral trade issues: There is a scope for bilateral trade disputes.
E.g., Switzerland withdrew the Most Favoured Nation (MFN) status of India by stating the Principle of Reciprocity, after the Supreme Court's decision in Nestle's Double Taxation Avoidance Agreement (DTAA) case.
EFTA’s has strategic importance to India’s development goals with Norway’s expertise in green shipping, Switzerland’s advancements in rail networks, Iceland’s leadership in geothermal energy, and Liechtenstein’s high-value manufacturing. The research collaborations between IITs and the Arctic University of Norway, demonstrating TEPA’s broader scope beyond trade.
Context: India is revisiting its 2016 Model Bilateral Investment Treaty (BIT) amid trade and investments shifting away from China, following the US-China trade war. The move comes as India negotiates BITs with countries like the UK, UAE and the EU, balancing investor protection with national interests.
Relevance of the Topic:Prelims: Model Bilateral Investment Treaty 2016; Challenges
What are Bilateral Investment Treaties (BITs)?
Bilateral investment Treaties (BITs) are agreements between two countries for the reciprocal promotion and protection of investments in each other's territories by individuals and companies situated in either State.
BITs encourage foreign investors to invest in a State and there by contributing towards overall developments and advancements of the economy.
Key provisions of Model Bilateral Investment Treaty, 2016
National Treatment: Foreign investors should be treated at par with the domestic investors.
Expropriation (taking over property): Prohibits the state from expropriating the foreign investments, except under exceptional circumstances, in a non-discriminatory manner.
Enterprise-based definition of investment:
Asset-based definition of the investment under the earlier BITs has been replaced by Enterprise based definition under the model BIT.
Asset-based definition considers every kind of asset – both movable and immovable including the IPRs as investment and gives protection under treaties.
Moving away from an asset-based approach to an enterprise-based approach aims at narrowing the scope of investments to be protected and thus seeks to reduce the number of BIT claims that can be brought against India.
Exclusion of MFN treatment:
In recent years, some foreign investors have sued India arguing that they have to get the same beneficial treatment given to companies from other countries.
Accordingly, India has dropped Most Favoured Nation (MFN) Clause from the Model BIT.
Conditions for initiating arbitrations at international arbitrations:
Model BIT stipulates that the aggrieved investor should use all local remedies as well as negotiations and consultations before initiating arbitrations against the host State.
Investors can use outside remedies only five years after resorting to all domestic arrangements.
Corporate Social Responsibility: Model BIT mandates foreign investors to voluntarily adopt internationally recognized standards of corporate social responsibility.
Need for Revamping 2016 Model BIT
Narrow definition of Investment:
India proposes a narrow ‘enterprise-based’ definition for investment, whereby only direct investments are protected under the treaty.
Definition of investment in Model BIT also contains a negative list, which precludes portfolio investments, interest in debt- securities, intangible rights, etc. from the definition of investment.
Thus, the new definition does not take into account the increased scope of foreign investments in the modern era.
Exhaustion of Domestic Remedy Clause:
2016 model BIT provided that an investor must exhaust local remedies before taking recourse to international arbitration. This surely does little to increase confidence in foreign investors.
Changing Global Scenario:
The latest US-China trade war has prompted trade and investments to shift away from China. India is aiming to attract these investments.
Concerns raised by Western trade partners:
Multiple Western trade partners cited burdensome norms during ongoing treaty negotiations.
India has been involved in trade negotiations with the UK for over two years and is yet to reach even close to signing a deal with the EU.
The West may not even be willing to accept the three-year clause and would prefer easier norms.
Prospects of new Investment treaties:
India is currently in talks with the UK and the European Union for an investment treaty.
India is also expected to negotiate a BIT with the European Free Trade Association (EFTA) region.
EFTA has committed to invest $100 billion in India over a 15-year period.
Competition from other countries:
E.g., The EU has signed a deal with India’s competitors such as Vietnam giving it an advantage over India.
Previous cases of regulatory risks:
Higher Taxes on Dividends: For instance, Nestle case.
Switzerland suspended the Most-Favoured-Nation (MFN) clause in the Double Taxation Avoidance Agreement (DTAA) originally signed between India and Switzerland in 1994.
This decision followed a ruling by the Supreme Court last year, which determined that DTAA cannot be enforced unless it is notified under Income Tax Act.
As a result, Swiss companies such as Nestlé face higher taxes on dividends.
Retrospective Taxation: E.g., Vodafone case.
License cancellations without due process: E.g., Devas case.
Lengthy judicial proceedings on arbitration awards.
Reforms Suggested
New approach of UAE BIT:
UAE BIT introduces asset-based protection, moving beyond the earlier entity-based definition of investment. In entity-based protection, an entity has to be registered in India.
Foreign Portfolio Investors (FPIs) now qualify for BIT protection, indicating a pro-investor shift in policy.
Flexible dispute resolution: Introducing a fork-in-the-road clause instead of rigid waiting periods.
If an investor has a dispute with the state, they choose whether to submit the dispute to domestic courts or pursue international arbitration.
Once that choice is made, it is final and irrevocable.
With this approach, India is neither stopping investors nor forcing them to go through domestic courts.
Some investors may still opt for domestic courts because they do not want to antagonise the state by pursuing international arbitration.
India’s BIT revamp signals a shift towards pro-investor policies while maintaining strategic state control. By adopting a balanced approach, India can attract FDI while ensuring its economic sovereignty and policy flexibility.
Context: India’s goods exports dipped in December 2024, while imports showed growth. However, the trade deficit narrowed to a three-month low.
Relevance of the Topic:Prelims: Basic idea of the key trends in External Trade.
Present Status of External Trade
Exports of Goods: Goods exports contracted 1% year-on-year in December 2024, totaling slightly over $38 billion.
Import of Goods: Imports grew 4.9% to almost $60 billion.
Merchandise Trade Deficit narrowed to a three-month low of $21.9 billion.
This reflects significant improvement from November’s record gap of $31.8 billion.
Gold Imports: grew by $4.7 billion in December.
This is the corrected data by the government after rectifying an error of “double counting”.
Petroleum imports rose 2.2% to $15.3 billion in December.
Petroleum product exports declined sharply by 28.6%, standing at $4.9 billion.
Trade deficit:
On a year-on-year basis, December’s trade deficit was 17% higher, compared to December 2023.
Total deficit through the year increased by 11.1%, reaching $210.8 billion.
Analysis of External Trade Data
Reasons for export blip: Volatility of gold and petrol prices shooting up are the main factors behind fall of exports.
Consistency of the export sector: Shipment values have grown in every quarter through the 1st nine months of this financial year (FY 2024-25).
This highlights the resilience of the export sector during a challenging global economic environment.
A tariff war by the incoming U.S. administration could throw up new opportunities for India. A focused export strategy for key markets like the U.S., the continuation of measures like the Interest Equalisation Scheme, and a resolution of GST-related export challenges are necessary to ensure sustained growth.
Context: While the rupee is hitting fresh lows against the US dollar each day, its exchange rate has scaled an all-time-high in “real effective” terms. The real effective exchange rate (REER) index of the rupee touched a record 108.14 in November, strengthening by 4.5% during the calendar year 2024.
Relevance of the Topic: Prelims: Real Effective Exchange Rate, Nominal Effective Exchange Rate
What is Real Effective Exchange Rate (REER)?
Real effective exchange rate (REER) is the weighted average of a country's currency in relation to an index or basket of other major currencies. The weights are determined by comparing the relative trade balance of a country's currency against that of each country in the index.
Function: REER is used to understand how well a currency is doing with respect to other currencies and also with respect to itself in the past.
Interpretation:
An increase in a nation's REER is an indication that its exports are becoming more expensive and its imports are becoming cheaper, reducing its trade competitiveness.
A decrease in REER denotes depreciation in rupee’s value, whereas an increase reflects appreciation.
REER above 100 denotes that the home currency is overvalued and more expensive compared to its competitors.
What Is the Nominal Effective Exchange Rate (NEER)?
Nominal effective exchange rate (NEER) is an unadjusted weighted average rate at which one country's currency is exchanged for a basket of multiple foreign currencies.
NEER is an economic indicator of a country's international competitiveness in terms of the foreign exchange (forex) market.
The Reserve Bank of India has constructed NEER indices of the rupee against a basket of 6 and also of 40 currencies.
The former is a trade-weighted average rate at which the rupee is exchangeable with a basic currency basket, comprising the US dollar, the euro, the Chinese yuan, the British pound, the Japanese yen and the Hong Kong dollar.
The latter index covers a bigger basket of 40 currencies of countries that account for about 88% of India’s annual trade flows.
A nation's nominal effective exchange rate (NEER),adjusted for inflation in the home country, equals its real effective exchange rate (REER).
What are the implications of soaring REER?
The real effective exchange rate (REER) index of the rupee touched a record 108.14 in November 2024.
A rising REER indicates that India’s exports are becoming less competitive globally due to higher prices, while the imports are becoming cheaper. That translates into a loss of trade competitiveness and can potentially widen the trade deficit.
Context: India’s balance of payments (BoP) is in better shape now compared to previous years. This improvement is primarily due to the relatively low Current Account Deficit. While India’s forex reserves have declined slightly in the recent past, they still remain at a comfortable level.
Relevance of the Topic: Prelims: Balance of payments; Current Account Deficit; Forex Reserves.
Balance of Payments:
The balance of payments (BoP) of a country is a systematic record of all economic transactions between the residents of the reporting country and residents of foreign countries during a given period of time.
Balance of Payments
Current Account
Capital Account
- Exports/Imports - Net factor Income from Abroad -Remittances and other Transfers
India typically experiences a Current Account Deficit (CAD), which is often balanced by a Capital Account Surplus. This means that when the capital account surplus exceeds the current account deficit, it results in an overall positive balance of payments, contributing to an increase in foreign exchange (forex) reserves.
Conversely, if the capital account surplus does not sufficiently cover the current account deficit, it can lead to a negative BoP, resulting in a depletion of forex reserves.
What are Forex Reserves?
Foreign exchange reserves refers to the reserves of the RBIkept in the form of Foreign Currency Assets, Gold, SDR and Reserve Tranche Position with the International Monetary Fund (IMF).
Forex reserves are kept as a cushion against any potential balance of payment related crisis.
In India, the Reserve Bank of India Act 1934 enables the RBI to act as the custodian of foreign reserves.
Forex reserves accrete when there is positive BoP, while negative BoP may deplete the forex reserves.
Dynamics of Forex Reserves in India:
In recent years, India has witnessed accretion of forex reserves in most of the years while depletions happened only in some, such as 2011-12, 2018-19 and 2022-23.
India’s BoP problems today stem mainly from the capital account but not current account. CAD levels have been moderated over the period and they can be financed through capital flows.
However, net foreign direct investment (FDI) flows into India dropped by around 62% to $10.58 billion in 2023-24 (FY24) — the lowest since 2007 — from $27.98 billion the previous year. This was mainly on account of higher repatriation of capital and Indian companies’ investments abroad. Net FPI flows, by contrast, hit a record $44.08 billion in 2023-24.
Context:Reserve Bank of India (RBI) Governor Shaktikanta Das has recently said that India has no immediate plans for de-dollarisation. These comments came in the backdrop of U.S. President-elect Donald Trump’s threat to impose a 100% tariff on BRICS nations planning to have a common currency to challenge the dominance of the U.S. dollar in global trade.
Relevance of the Topic: Prelims- De-Dollarisation; Why is De-Dollarisation gaining traction?
What is De-Dollarisation?
De-dollarisation refers to the process by which the countries seek to reduce their reliance on the US dollar in International trade and finance.
potential sanctions or restrictions imposed by the US.
Rise of Cryptocurrencies: Cryptocurrencies, such as Bitcoin, are a new form of digital currency that is not subject to government control. This has made them an attractive alternative to the US dollar.
Bilateral Trade Agreements: Increasingly, countries are entering into bilateral agreements to conduct trade in local currencies rather than using the dollar. This shift aims to enhance economic sovereignty and reduce transaction costs associated with currency conversion.
Global examples of De-dollarisation efforts:
China: China is actively promoting Yuan through its Belt and Road Initiative & Yuan-based trade agreements.
Russia: India and Russia are exploring a dynamic rupee-rouble rate to overcome dollar trade barriers in the wake of US sanctions on Russia.
Proposed BRICS Currency: The BRICS countries are discussing the possibility of a common BRICS currency to reduce their reliance on the dollar.
The global movement toward de-dollarisation is a complex, gradual process driven by geopolitical and economic realities. The challenges include the inertia against transition to alternative currencies, huge investment to build robust-systems for non-dollar transactions.
Context: The foreign ministers’ meeting of QUAD nations to be held comes at a time when the United Nations Security Council (UNSC) is weakened and its reform nowhere in sight.
Current geostrategic realities and dilemmas
Both the Ukraine war and Israel's actions in Gaza demonstrate blatant disregard for international law.
An axis of Russia, China, North Korea, and Iran is gaining momentum and Chinese influence is growing not just in the Indo-Pacific, but regions like West Asia too.
The U.S. has realised that it needs not just allies, but also credible partners in its security architecture, including in the Indo-Pacific, and reached countries like India to partner with them in smaller pluri-lateral groupings and joint security initiatives.
Further, ASEAN countries are getting increasingly vulnerable, with the South China Sea remaining a conflict point.
While India is a member of many pluri-lateral groups on both sides of the geo-strategic ‘divide’, its engagement in Quad and with BRICS present the country with interesting, and sometimes contrasting, dilemmas.
India has enthusiastically embraced Quad and its strategic objectives.
The fact that India, during its presidency of the UNSC in 2021, held a high-level virtual event on ‘Enhancing Maritime Security’, which was attended by the Russian President, among others, indicates the importance India attaches to strengthening maritime security in the Indo-Pacific and beyond.
India was an enthusiastic founder of BRICS. In fact, at the 10th annual summit of the BRICS in 2018, India reminded the BRICS members of its ‘reformed multilateralism’ vision.
In the backdrop of this, let us understand the significance of QUAD and BRICS and their importance for India.
What is QUAD?
The occurrence of a Tsunami in the Indian Ocean led to India, Japan, Australia, and the US to build an informal alliance for collaborating on disaster relief efforts.
In 2007, Japan formalised it into the Quadrilateral Security Dialogue or the QUAD.
The QuadrilateralSecurity Dialogue (QSD), the Quad is an informal strategic forum comprising, United States of America (USA), India, Australia and Japan.
One of the primary objectives of the Quad is to work for a free, open, prosperous and inclusive Indo-Pacific region.
The group met for the first time in 2007 on the sidelines of the Association of Southeast Asian Nations (ASEAN).
The Quad regained momentum in 2017, driven by shared concerns regarding the assertiveness of China in the Indo-Pacific region and a desire to uphold peace and stability in the Indo-Pacific.
It was in 2017 when the first official talks under the Quad took place in the Philippines.
Quad Summit in 2022 (Tokyo):
The Quad summit witnessed the launch of a new initiative for continuous collaboration in the maritime domain, space, climate change, health, and cyber security.
The member countries pledged to meet challenges for ensuring rules-based maritime order, including in the East and South China Seas.
The members strongly opposed any coercive, provocative, or unilateral actions that seek to change the status quo.
Significance of Quad:
Delivering outcomes for the Indo-Pacific: In response to the region's priorities and most pressing challenges, including health security, climate change, infrastructure, critical and emerging technology, cyber security, disaster relief, maritime security, countering-terrorism, etc.
In the face of the global COVID-19 pandemic, the Quad gained further relevance as the group shifted its focus to vaccine diplomacy, health security, and economic recovery.
ASEAN centrality: Quad partners work closely to ensure efforts complement wider engagement in the Indo-Pacific, both bilaterally and through regional institutions.
All Quad partners are long-standing ASEAN Dialogue Partners and steadfast supporters of ASEAN centrality, the ASEAN-led regional architecture and the ASEAN Outlook on the Indo-Pacific.
Strengthened bilateral relationships among Quad nations:
India now has ministerial-level ‘2+2’ (defence and foreign minister) meetings with Japan and the United States and Australia.
India and the United States further signed a communications compatibility and security agreement (COMCASA) in 2015 and a logistics exchange memorandum of agreement (LEMOA) in 2016.
A major obstacle to closer Japan-India relations was removed with the passage of the landmark Japan-India civil nuclear cooperation agreement in May 2017.
Japan became a permanent member of the formerly bilateral U.S.-India naval exercise, Malabar, in 2015.
The AUSINDEX exercise between Australia and India grew in size and scope.
The function of these bilateral and mini-lateral exercises was to create trust among the militaries of the Quad nations,promote interoperability, and set the foundation for political ties at a deeper level.
Grappling with geopolitics:
Japan’s foreign policy has become more explicitly anti-Chinese, with emphasis on the physical security of its territorial space and linking defence of Northeast Asia to the rest of the Indo-Pacific.
Australia views China as a strategic rival and seeks security through partnerships, both formal and informal, with other powers, rather than having to balance relationships with China.
As for the U.S., it benefits from the Quad principally because, until the emergence of the framework, Washington lacked any overarching instrument to manage its many security relationships in the Indo-Pacific.
The U.S. is now party to a structure that oversees all the key lines of communication from Northeast Asia through the Indian Ocean, and stands to gain from intelligence sharing.
Significance for India:
It is believed that the forum strategically counters China’s economic and military rise. Interestingly, if Chinese hostilities rise on the borders, India can take the support of the other Quad nations to counter the communist nation.
India can even take the help of its naval front and conduct strategic explorations in the Indo-Pacific region.
From a security perspective, New Delhi’s relationship with Washington delivers effective balance against China at both the strategic (nuclear deterrence) and conventional levels.
On the diplomatic field, a U.S. partnership adds weight to India’s geopolitical heft. As India strives to grow its economy, it needs the U.S. military presence to ease its defence spending burden.
Being a strategic partner of the U.S. helps India attain better access to the lucrative U.S. market and thereby build its citizens’ affluence.
India’s vision goes beyond viewing Quad as a geopolitical security objective vis-à-vis China.
India aims to redraw the security and techno-economic architecture of the Indo-Pacific region.
With Quad now working on reorientation of global supply chains of critical technologies and on a range of areas of direct strategic relevance to the region, including digital, telecom, health, power, and semiconductors, it has underlined that development too has a security perspective which cannot be ignored.
What is BRICS?
The BRICS countries are considered the foremost geopolitical rival to the G7 bloc of leading advanced economies, implementing competing initiatives such as the New Development Bank, the BRICS Contingent Reserve Arrangement, the BRICS pay, the BRICS Joint Statistical Publication and the BRICS basket reserve currency.
Initially termed BRIC in 2001, the acronym BRICS was coined by Jim O’Neill, a Goldman Sachs economist, to encompass Brazil, China, India, and Russia.
The BRIC grouping’s first formal summit was held in Yekaterinburg, Russia, commenced in 2009. During this summit, BRIC Leaders issued a Joint Statement elucidating the objectives of the BRIC collaboration.
South Africa officially became a member nation in 2010. The group was renamed BRICS – with the “S” standing for South Africa – to reflect the group’s expanded membership.
In 2023, Egypt, Ethiopia, Iran, Saudi Arabia and UAE joined BRICS.
These BRICS nations possess a notable competitive advantage owing to their economical labor costs, advantageous demographics, and copious natural resources, particularly during the era of the global commodities upswing.
Significance of BRICS:
BRICS has evolved into a unified and purposive entity, championing the cause of reforms in major multilateral institutions with a clear intention of democratising global governance.
Establishment of the New Development Bank (NDB) in 2013:
Endowed with an initial capital of US$50 billion, the NDB was conceived as a credible alternative to existing financial institutions (like IMF and World Bank which are dominated by the western powers).
The equitable distribution of the initial subscribed capital among BRICS members underscores the commitment to collective action.
Trade and investment landscape within BRICS:
Promising dynamics between India and China within the broader BRICS umbrella.
The bilateral trade between India and China reached a historic high of US$ 135.98 billion in 2022.
The contribution of BRICS members to global exports has been on the rise, with the growth rate of exports between BRICS member states surpassing the global average.
This has yielded concrete advantages and played a pivotal role in fostering increased investment within the bloc.
The intra-BRICS integration encompasses free trade agreements and export-oriented strategies, including tariff exemptions, tariff reductions, across various goods and service sectors. This proactive approach has led to substantial growth, expanding trade, and a rise in both inward and outward foreign direct investment (FDI).
According to UNCTAD data, cumulative foreign direct investment (FDI) holdings within the BRICS nations substantially increased from US$ 27 billion in 2010 to US$ 167 billion in 2020.
This shift collectively represented 1.3 percent to 4.7 percent of their total FDI assets, marking considerable growth.
Notably, China played a predominant role, being the most significant contributor and recipient of FDI among BRICS nations.
Moreover, Brazil and India also observed robust investment expansions from fellow BRICS members.
BRICS Contact Group on Economic and Trade Issues (CGETI):
Acknowledging the significance of enhancing BRICS nations' attractiveness as investment destinations, even amid the challenges posed during the COVID-19 pandemic, CGETI has urged additional measures to create a conducive atmosphere for sustainable development-oriented investments.
This includes initiatives to improve transparency and simplify national administrative processes and prerequisites.
Significance of the inclusion of new members:
Enhanced inclusivity:
Including more countries from Africa and Asia will enhance BRICS' representation of developing nations and diversify its geographical reach.
A more diverse BRICS gains legitimacy advocating for Global South issues like fair-trade, climate justice, and technology access.
Formerly representing 40% of the world’s population and a quarter of GDP, expanded BRICS now covers nearly half the global population.
Economic strength:
BRICS, earlier represented 24% of global GDP and now with the inclusion of five new economies, it could increase its influence in IMF and World Bank forums.
In 2022, intra-BRICS trade reached $500 billion and the expansion could enhance trade and investment, strengthening economic ties and bargaining power.
Saudi Arabia, Iran, and the UAE, among the world's top-10 oil producing countries, enhance BRICS' global influence in shaping energy policies and market dynamics, strengthening its role as a Global South champion.
Advocacy for reforms:
BRICS have collectively called for reforms to the UN Security Council to include more representation from the Global South.
An expanded BRICS can bolster the Global South's political voice in international forums, advocating for reforms aligned with their interests.
BRICS nations agreed to promote use of local currencies in trade to reduce dependence on major global currencies.
The expanded BRICS could provide grounds for this practice. The UAE and India have agreed to trade in Rupees and Dirhams instead of the US Dollar.
With India being the only country common to both Quad and BRICS, the country has immense opportunities at its doorsteps which can be explored with the right strategic policies to serve its larger goals.
Context: As per the latest RBI data, External Commercial Borrowing (ECBs) registrations by Indian companies shot up about 84% in FY24 to $49.2 billion, against $26.7 billion in FY23.
What are External Commercial Borrowings (ECBs)?
External commercial borrowing (ECBs) are loans in India made by non-resident lenders in foreign currency to Indian borrowers.
They are used widely in India to facilitate access to foreign money by Indian corporations and PSUs (public sector undertakings).
ECBs include commercial bank loans, buyers' credit, suppliers' credit, securitised instruments such as floating rate notes and fixed rate bonds etc., credit from official export credit agencies and commercial borrowings from the private sector window of multilateral financial Institutions such as International Finance Corporation (Washington), ADB, AFIC, CDC, etc.
ECBs cannot be used for investment in the stock market or speculation in real estate.
Regulated by: The DEA (Department of Economic Affairs), Ministry of Finance, Government of India along with Reserve Bank of India, monitors and regulates ECB guidelines and policies.
ECBs are part of the Capital Account in Balance of Payments.
What is the Balance of Payments?
The balance of payments (BoP) records the transactions in goods, services and assets between residents of a country with the rest of the world for a specified time period typically a year.
There are two main accounts in the BoP — the current account and the capital account.
Capital Account
Capital Account records all international transactions of assets.
An asset is any one of the forms in which wealth can be held, for example: money, stocks, bonds, Government debt, etc.
Purchase of assets is a debit item on the capital account. If an Indian buys a UK Car Company, it enters capital account transactions as a debit item (as foreign exchange is flowing out of India).
On the other hand, sale of assets like the sale of shares of an Indian company to a Chinese customer is a credit item on the capital account.
Balance on Capital Account:
Capital account is in balance when capital inflows (like receipt of loans from abroad, sale of assets or shares in foreign companies) are equal to capital outflows (like repayment of loans, purchase of assets or shares in foreign countries).
Surplus in capital accounts arises when capital inflows are greater than capital outflows, whereas deficit in capital account arises when capital inflows are lesser than capital outflows.
India has witnessed capital account surplus in the recent past.
Context: The rupee has depreciated by 27.6% against the US dollar between April-end 2014 and now, from Rs 60.34 to Rs 83.38. This is marginally higher than the 26.5% from April-end 2004 to April-end 2014, where the rupee had fallen from 44.37 to 60.34.
How Do We Measure a Currency’s Strength?
India trades not only with the US. It exports goods and services to other countries as well, while also importing from them.
The strength or weakness of the rupee is, hence, a function of its exchange rate with not just the US dollar, but also with other global currencies.
In this case, it would be against a basket of currencies of the country’s most important trading partners – what’s called the rupee’s “effective exchange rate” or EER.
The CPI is the weighted average retail price of a representative consumer basket of goods and services for a given month or year, relative to a fixed base period.
The EER is an index of the weighted average of the rupee’s exchange rates vis-à-vis the currencies of India’s major trading partners.
The currency weights are derived from the share of the individual countries to India’s total foreign trade, just as the weights for each commodity in the CPI are based on their relative importance in the overall consumption basket.
Nominal Effective Exchange Rate (NEER)
The Reserve Bank of India has constructed NEER indices of the rupee against a basket of 6 and also of 40 currencies.
The former is a trade-weighted average rate at which the rupee is exchangeable with a basic currency basket, comprising the US dollar, the euro, the Chinese yuan, the British pound, the Japanese yen and the Hong Kong dollar.
The latter index covers a bigger basket of 40 currencies of countries that account for about 88% of India’s annual trade flows.
The NEER indices are with reference to a base year value of 100 for 2015-16: Increases indicate the rupee’s effective appreciation against these currencies and decreases point to overall exchange rate depreciation.
The NEER is a summary index that captures movements in the external value of the rupee against a basket of global currencies. However, the NEER does not factor in inflation, which reflects changes in the internal value of the rupee.
Real Effective Exchange Rate (REER)
The REER is basically the NEER that is adjusted for the inflation differentials between the home country and its trading partners. If a country’s nominal exchange rate falls less than its domestic inflation rate – as with India – the currency has actually appreciated in “real” terms.
A decrease in REER denotes depreciation in rupee’s value, whereas an increase reflects appreciation.
REER above 100 denotes that the home currency is overvalued and more expensive compared to its competitors.
Implications:
The rupee is overvalued today in terms of its REER.
Any increase in REER means that the costs of products being exported from India are rising more than the prices of imports into the country. That translates into a loss of trade competitiveness – which may not be quite a good thing in the long run.
