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G.S II - Bilateral/International Relations

India-US Geopolitical Relations


Why in news?

The relationship between the India and US has been put under severe stress by Russia’s Ukraine war.

How about the evolution of bilateral ties over two decades?

  • Bill Clinton Period- Much of the western world came down heavily on India for the nuclear tests conducted by India in 1998.
  • Then Prime Minister Atal Bihari Vajpayee wrote to President Bill Clinton, putting China in the frame.
  • The rapprochement and subsequent strengthening of bilateral ties paved way for the historic visit of President Clinton in 2000.
  • Bush Presidency- The Indo-US nuclear deal of the George W Bush years elevated Indo-US ties to a higher strategic trajectory.
  • Barack Obama’s Tenure- Barack Obama became the only President to make two visits to India.
  • He hosted both Prime Ministers Manmohan Singh and Narendra Modi in the White House.
  • Donald Trump Period- During Trump’s tenure, ties continued to improve and the Quad framework was revived.
  • The defence partnership was strengthened with the signing of the foundational agreements.
  • Joe Biden Presidency- The rhythm has been maintained, especially on the Indo-Pacific strategy, even though the chaotic US exit from Afghanistan left New Delhi vulnerable.

What is the current geopolitical situation?

  • Russia’s invasion of Ukraine - India’s refusal to criticise Moscow’s war has made the US deeply uncomfortable.
  • When Prime Minister Narendra Modi told President Vladimir Putin in the Shanghai Cooperation Organisation (SCO) Summit 2022 that “today’s era is not of war”, the US was pleased with the articulation.
  • Buying oil- The US was unhappy with India for buying more oil from Russia than earlier.
  • But, India argues that it must protect its citizens from the inflationary impact of the war.
  • F-16 Programme- India blasted the United States for its move to provide Pakistan with the F-16 case for sustainment and related equipment.
  • However, the US framed it as a continuation of the old programme that is necessary for Pakistan to fight terrorism.
  • Some analysts view the renewal of the US-Pakistan military engagement as a message to New Delhi for its strategy of “issue-based alignment”.

What lies ahead?

  • With the recent “no-limits” ties between Russia and China, issues in the US-India relationship present potential weak spots.
  • Since both India and the US see China as the biggest threat and rival, it is time to accommodate and invest in the bilateral relationship.

 

Reference

  1. https://indianexpress.com/article/explained/explained-global/india-us-ties-depth-nuance-russias-ukraine-war-tension-trust-8183481/

G.S II - International Issues

The Nord Stream Pipeline Leaks


Why in news?

Four leaks were reported (two in Swedish waters and 2 in Danish waters) in Nord Stream pipelines linking Russia and Europe.

What is Nord Stream Pipeline?

  • Owned by the Russian energy giant, Gazprom, Nord Stream Pipeline is the longest subsea pipeline.
  • It is an export gas pipeline that runs under the Baltic Sea carrying gas from Russia to Europe.
  • The gas for Nord Steam comes mainly from the Bovanenkovo oil and gas condensate deposit in Western Siberia.
  • Nord Stream consists of two pipelines, which have two lines each.
    • Nord Stream 1 that runs from Vyborg in Russia to Lubmin in Germany was completed in 2011.
    • Nord Stream 2 that runs from Ust-Luga in Russia to Lubmin in Germany was completed in 2021.
  • Both the pipelines together can transport a combined total of 110 billion cubic metres of gas a year to Europe for at least 50 years.
  • The Nord Stream crosses the Exclusive Economic Zones (EEZs) of several countries including Russia, Finland, Sweden, Denmark and Germany, and the territorial waters of Russia, Denmark, and Germany.
  • While both pipelines are not currently running commercially, they had millions of cubic metres of gas stored in them.

nordleaks

What is the current leak about?

  • Two leaks were detected on the Nord Stream 1 pipeline, both in an area northeast of the Danish island of Bornholm.
  • Sweden had reported two separate underwater explosions, very close to where the leaks occurred.
  • Possible causes of the leak- The investigations have not yet revealed the cause behind the leaks.
  • Possible causes range from technical malfunctions to a lack of maintenance, to even possibly sabotage (deliberate damage or destruction of equipment or property which belongs to the enemy).
  • The European Union (EU) and North Atlantic Treaty Organisation (NATO) called the leaks acts of sabotage.
  • Russia, which controls the pipeline, has not ruled out sabotage either.
  • Ukraine said the leaks were likely the result of a terrorist attack carried out by Russia.
  • Various European countries, such as Sweden and Denmark, have launched separate investigations into the matter.

What will be the impact of the leaks?

  • Economic impact- European gas prices immediately spiked after the reports of the leaks emerged.
  • As a result of the leak, all the stored gas is escaping.
  • The pipelines are unlikely to provide any gas to Europe through the forthcoming winter months.
  • Depending on the intensity of the damage caused by these ruptures, permanent closure of the Nord Stream lines was also a possibility.
  • Environmental impact- Methane is a large component of natural gas and is also a potent greenhouse gas.
  • It is the second-largest contributor to climate change after CO2.
  • Other impacts- Vessels could lose buoyancy if they enter the area, and there might be a risk of leaked gas igniting over the water and in the air.

What steps can countries take to protect their critical infrastructure?

  • The Nord Stream incident shows the importance of surveillance, and making sure countries know which boats and submarines are around the pipeline.
  • The steps involves
    • Building more protective pipes that can withstand intrusion
    • Controlling access to pipelines
    • Monitoring them
    • Intercepting potential attacks

 

References

  1. https://www.thehindu.com/news/international/explained-the-nord-stream-pipeline-leaks-what-happened-and-what-is-at-stake/article65950516.ece?homepage=true
  2. https://www.npr.org/2022/10/03/1126517181/nord-stream-pipeline-leaks-protecting-critical-infrastructure
  3. https://www.aljazeera.com/news/2022/9/27/qa-what-is-known-so-far-about-the-nord-stream-gas-pipeline-leak

G.S III - Economy

Global Bond Indices


Why in news?

The Indian government has been trying hard to include the government debt in the large global bond indices.

What are global bond indices?

  • Global bond indices include the emerging debt markets that closely monitor local currency bonds that are issued by governments of various developing nations.
  • JP Morgan and Bloomberg–Barclay’s are the popular global bond market indices.
  • Significance- Global bond indices help investors track the movement in bonds in multiple jurisdictions and aid in relative comparisons.
  • Indices are benchmark or guides to investments by mutual funds, pension funds and other large investors that typically prefer to hold onto investments for longer periods.
  • In the bond market, there are indices that track high-yield risky bonds, emerging market bonds and government bonds.

What basic criteria is required for index inclusion?

  • Conditions that enable easy flow of money into the country is predominant.
  • The countries must meet parameters on liquidity, safety, and returns.
  • The main parameters include
    • The size of the market
    • The country rating
    • Ease of access
  • Country-level criteria for index inclusion includes
    • Absence of restrictive laws on movement of capital
    • Availability of forex
    • Adequate hedging mechanism
    • Tax laws
    • Settlement of trade

What about India’s case?

  • Despite being the second largest bond market within emerging markets, India is not a part of the global index.

Reasons for non-inclusion

  • Taxation laws- At present, long-term capital gains is taxed at 20% (excluding surcharge), while short-term capital gains is subject to 15%.
  • India is unwilling to discriminate between domestic and foreign investors and place foreign investors advantageously.
  • Settlement mechanism- At present, all bonds, whether G-secs or otherwise, if listed as part of the index, are to be settled in Euroclear.
  • But, India is batting for local settlement of its government securities, as in the case of China.
  • Even if settlement is allowed in domestic clearing houses, the process is cumbersome for foreign investors.

Euroclear Bank is a provider of settlement services for cross-border transactions, whether bonds (domestic or international), equities, derivatives or investment funds.

What are the benefits of being included in global bond indices?

  • Reduced pressure on commercial banks- The inclusion in the global bond index will reduce the pressure felt by commercial banks to absorb the majority of government bonds.
  • Strengthen the investor base- Inclusion in global indices would strengthen a key investor base -foreign institutional investors.
  • Surge in investment- If India is included in the global bond index, it will attract passive inflows, which in turn will result in the surge of active foreign fund inflows.
  • Confidence in Indian rupee- It will benefit the Indian rupee as there will be increased confidence, resulting in further strength and stability.
  • Equity inflows- With a stronger rupee, equity inflows are also likely to rise.
  • Stable exchange rate- A steady flow of dollars keeps the exchange rate from depreciating too much.

A report by JP Morgan estimates that India’s inclusion in the global index will increase the foreign ownership in G-Secs to 10% from the current level of less than 2%.

References

  1. https://www.thehindubusinessline.com/blexplainer/bl-explainer-the-big-deal-about-global-bonds-and-indias-inclusion/article65965559.ece
  2. https://www.moneycontrol.com/news/business/markets/mc-explains-why-india-should-pursue-inclusion-in-global-bond-indices-9100201.html
  3. https://www.fisdom.com/global-bonds-index-why-indias-inclusion-matters/

 

Quick facts

Passive fund

  • A passive fund is an investment vehicle that tracks a market index, or a specific market segment, to determine what to invest in.
  • Example- Tracker funds, such as ETFs (exchange traded funds) and index funds.

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