Why in news?

India hosted the second India–Arab Foreign Ministers’ Meeting in New Delhi, bringing together 22 members of the League of Arab States a decade after the first such meeting in Bahrain.

The talks took place against a backdrop of heightened regional tensions in the Middle East, including strained US–Iran relations, growing differences between Saudi Arabia and the UAE, and renewed US-led efforts on the Israel–Palestine issue.

The resulting Delhi Declaration outlined shared positions and commitments between India and the Arab League, reaffirming India’s balanced and active approach to Middle East diplomacy while seeking to deepen political and strategic cooperation with Arab states.

What’s in Today’s Article?

• Regional Conflicts and What the Delhi Declaration Signals
• Principal Conflicts: What the Delhi Declaration Says — and Avoids
• What the Delhi Declaration Reveals About India’s Middle East Diplomacy

Regional Conflicts and What the Delhi Declaration Signals

• The Delhi Declaration strongly stresses respect for the sovereignty, unity and territorial integrity of Sudan, Libya and Somalia, while rejecting any external interference.
• This reflects a shared India–Arab League position in favour of internationally recognised governments rather than rival or breakaway authorities.
• Middle East Power Rivalries in the Background
  • These conflicts are shaped by a broader power tussle within the Middle East.
  • On one side are countries aligned with Saudi Arabia, and on the other a camp associated with the UAE and Israel, with US backing.
  • Though these camps are not officially acknowledged, their differences play out clearly in conflict zones.
  • Sudan: The UAE is widely accused of backing the Rapid Support Forces, which have fought the Sudanese government, set up a parallel authority, and carried out large-scale violence against civilians.
  • Libya: The UAE has long supported Khalifa Haftar’s Libyan National Army, which opposes the UN-recognised government in Tripoli. Saudi Arabia and other Arab states have instead focused more on reconciliation.
  • Somalia: Israel is the only UN member to recognise Somaliland, a breakaway region. The UAE’s acceptance of Somaliland passports in 2025 has gone against the wider Arab League position.
    • India clearly rejected any recognition of Somaliland and aligned with the Arab League’s stance.
• India’s Clear Alignment
• India joined the Arab League in explicitly supporting recognised governments in Sudan and Libya and condemning violence against civilians.
• This marks a firm diplomatic position amid regional divisions.
• A Shift in Language on Yemen
  • On Yemen, India and the Arab League explicitly condemned Houthi attacks on shipping in the Red Sea.
  • This is a subtle but important shift for India, which in recent years avoided naming the Houthis directly.
  • The declaration’s emphasis on Yemen’s unity also aligns with Saudi Arabia’s stance against UAE-backed southern secessionist groups.
• Cautious Tone on Syria
  • The declaration says little on Syria, limiting itself to praising counter-terrorism efforts against Islamic State.
  • This mirrors India’s careful and low-key engagement with post-Assad Syria, where contacts have remained largely diplomatic and exploratory.
  • Overall, the Delhi Declaration shows India tilting towards stability, recognised governments, and Saudi-aligned positions on key conflicts, while maintaining a balanced and cautious approach in especially sensitive theatres like Syria.

Principal Conflicts: What the Delhi Declaration Says — and Avoids

• Silence on the US-Led Board of Peace - The Delhi Declaration makes no reference to the Donald Trump–led Board of Peace (BoP).
  • Although several Gulf states have joined the BoP, India has not yet accepted the invitation extended, signalling caution about formally associating with the initiative.
• Clear Preference on Israel–Palestine - Instead of the BoP, the declaration explicitly backs the Arab Peace Initiative (2002).
  • This framework supports land-for-peace—Arab recognition of Israel in exchange for an independent Palestinian state based on pre-1967 borders.
  • While the declaration also notes the outcomes of the 2025 Sharm el-Sheikh summit (the only place the US role is mentioned), the emphasis on the Arab Peace Initiative reveals India’s and the Arab League’s core preference.
• Backing Peace, Not a New Framework - India and Arab states support efforts to end the violence in Gaza, including US mediation, but stop short of endorsing the broader logic of President Trump’s plan for resolving the Israel–Palestine issue. Both sides reiterate support for Palestinian sovereignty.
• Avoiding Escalation with Iran - The declaration avoids mentioning the most destabilising flashpoint: the US military build-up around Iran and the risk of a wider conflict. This omission appears deliberate, allowing countries to manage bilateral approaches without public confrontation.
  • Key Arab League states, led by Saudi Arabia, are working to discourage US military action against Iran.
  • India’s outreach shows New Delhi’s effort to keep channels open with Iran while navigating US sanctions.
  • Notably, India’s Budget 2026–27 carries no allocation for Chabahar Port, despite a 10-year operational agreement signed in 2024.
  • This underscores India’s continued vulnerability to US sanctions and the careful balancing reflected throughout the Delhi Declaration.

What the Delhi Declaration Reveals About India’s Middle East Diplomacy?

• The Delhi Declaration reinforces cooperation between India and the Arab League across five core pillars—economy, energy, education, media, and culture—identified since their institutional engagement began in 2002.
• It builds on robust India–Arab trade exceeding $240 billion, underscoring the economic depth of the partnership.
• More broadly, the declaration crystallises India’s diplomatic approach to the Middle East and the Gulf.
• While New Delhi maintains strong partnerships across competing geopolitical blocs, these ties remain transactional and compartmentalised, without altering India’s broader regional positions.
• On sensitive geopolitical questions, India consistently favours long-standing, norm-based stances aimed at preserving regional stability and avoiding endorsement of actions that could deepen conflict or disruption.

Why in news?

India and the United States announced a long-awaited trade deal, sharply reducing the tariff rate on Indian goods from a punitive 50% to 18%.

The agreement comes after months of negotiations that began in February, amid sustained pressure from the Trump administration on trade imbalances.

What’s in Today’s Article?

• Trump’s Trade Deficit Push and India’s Action
• US Crude Gains as Trade Tensions Reshape Energy Flows
• Energy and Nuclear Convergence in India–US Ties
• Policy Reset to Cushion Trade Shock

Trump’s Trade Deficit Push and India’s Action

• A major driver behind the negotiations was President Donald Trump’s repeated concern over India’s goods trade surplus with the US.
• Even before taking office, Trump flagged the deficit as a priority issue, setting the tone for tougher trade engagement with India.
• India Steps Up US Imports
  • Recent trade data indicate that India responded by increasing imports from the US, helping narrow the trade gap.
  • According to the Commerce and Industry Ministry, India’s goods trade surplus with the US almost halved, falling from $3.17 billion in April to $1.73 billion in November.
• Impact of High US Tariffs
  • The imposition of 50% tariffs from August 2025 led to a noticeable decline in Indian exports to the US.
  • Exports fell from $6.86 billion in August to $6.30 billion in October, with labour-intensive sectors such as garments, footwear and sports goods hit the hardest.
  • At the same time, imports from the US rose sharply, increasing from $3.60 billion in August to $4.84 billion in October.
  • Encouragingly, Indian exports rebounded in November, rising 22%, driven mainly by electronic goods that remained outside the tariff net.

US Crude Gains as Trade Tensions Reshape Energy Flows

• The additional 25% US tariffs became one of the most contentious issues in India–US trade ties, delaying the agreement.
• This disrupted negotiations, pushing total US tariffs on India to 50%, even as Washington eased duties on China after a truce.
• Amid these trade strains, India ramped up crude oil imports from the US. This shift was reinforced by US sanctions on Russian oil majors Lukoil and Rosneft, which reduced Russia’s ability to export oil to India.
• Trade data show the US share in India’s oil imports rose to 7.48% between April and October, up from 4.43% a year earlier.
• In contrast, Russia’s share declined from 37.88% to 32.18%, highlighting a clear rebalancing in India’s crude sourcing.

Energy and Nuclear Convergence in India–US Ties

• Indian public sector refiners have signed a one-year agreement to import American LPG, covering about 2.2 million tonnes per annum, close to 10% of India’s total LPG imports.
  • LPG is a key cooking fuel, with over 60% of India’s requirement met through imports, traditionally sourced from Gulf countries.
• The US has steadily strengthened its energy footprint in India. It is now the fifth-largest supplier of crude oil to India, accounts for nearly 10% of crude imports, and is the second-largest supplier of LNG.
• Nuclear Reforms and Foreign Investment
  • Alongside deeper energy trade, India has opened its nuclear sector to foreign investment.
  • This move aligns with the Trump administration’s push for expanding nuclear power capacity, including existing plants and small modular reactors, signalling a broader strategic convergence in clean and secure energy.

Policy Reset to Cushion Trade Shock

• Uncertainty over the India–US trade deal led to capital outflows and a rethink of industrial policy.
• To protect MSMEs, the government rolled back several quality control orders (QCOs) that were hurting competitiveness and removed the 11% duty on cotton to support the textile sector hit by US tariffs.
• At the same time, India fast-tracked trade negotiations with major markets to reduce dependence on any single partner.
• Talks were concluded with New Zealand, a deal was signed with Oman, and negotiations are underway with the European Union, the GCC, and the Russia-led Eurasian Economic Union (EAEU).

Why in the News?

• The 16th Finance Commission has cautioned states against the rapid expansion of large, unconditional cash transfer schemes, which now account for over 20% of total state subsidy spending.

What’s in Today’s Article?

• Cash Transfers in India (Background, Trends in State Subsidies, State Level Patterns, Fiscal Concerns, Recommendations for Reforms, etc.)

Understanding Cash Transfers in India

• Cash transfers have increasingly become a preferred welfare instrument in India’s public finance framework.
• These transfers involve direct monetary payments to beneficiaries, usually deposited into bank accounts using the Jan Dhan-Aadhaar-Mobile (JAM) trinity.
• They are broadly classified into conditional and unconditional While conditional transfers are linked to outcomes such as education or health, unconditional cash transfers impose no performance or usage conditions.
• Historically, unconditional transfers in India were limited to social security pensions and farmer income support schemes.
• However, over the past decade, especially after improvements in digital delivery systems, states have expanded cash-based welfare to wider population groups.
• This shift has altered the composition of state subsidies, raising questions about long-term fiscal sustainability.

Trends in State Subsidies and Cash Transfers

• According to the 16th Finance Commission, large-group unconditional cash transfer schemes now constitute 20.2% of total state subsidy expenditure in the 2025-26 Budget Estimates, a sharp rise from just 3% in 2018–19.
• This indicates a structural shift in how states allocate welfare spending.
• The Commission notes that while pensions and farmer support accounted for nearly 84% of unconditional cash transfers in 2018-19, their share has fallen significantly.
• By 2025-26, large-group schemes alone account for 47.4% of all unconditional transfers, overtaking traditional categories.
• This reflects a growing preference for politically visible, broad-based cash schemes over targeted or merit-based subsidies.

State-Level Patterns and Key Schemes

• The Commission highlighted Maharashtra, Odisha, and Jharkhand as states that have witnessed the steepest rise in such spending over the past two years.
• Major schemes include:

• Majhi Ladki Bahin Yojana (Maharashtra): Rs. 1,500 per month to eligible women.
• Gruha Lakshmi (Karnataka): Rs. 2,000 per month to women heads of households.
• Lakshmir Bhandar (West Bengal): Monthly transfers to women beneficiaries across social categories.

• In Maharashtra, spending on large-group cash transfers rose from 0.6% of total revenue expenditure in 2023-24 to 6.2% in 2025-26, while Jharkhand saw an increase from 0.8% to 13% over the same period.
• Odisha recorded a jump from nil to 5.1%. These sharp increases indicate a rapid fiscal expansion rather than a gradual policy transition.

Fiscal Concerns Raised by the 16th Finance Commission

• The Finance Commission has warned that the unchecked expansion of unconditional cash transfers can destabilise state finances in the long run.
• Such schemes impose a recurring fiscal burden and reduce flexibility in budgetary allocations.
• The Commission observed that many of these transfers are poorly targeted, expanding into large beneficiary bases that dilute their redistributive effectiveness.
• A major concern is the crowding out of capital expenditure. Rising revenue spending on cash transfers limits states’ ability to invest in infrastructure, education, and health, which are critical for long-term growth.
• The Commission also cautioned against financing these schemes through off-budget borrowings, guarantees, or revenue assignments, calling such practices fiscally imprudent due to reduced transparency in public accounts.

Recommendations for Reform

• To address these risks, the 16^th Finance Commission has recommended:

• Periodic and rigorous review of subsidy schemes.
• Rationalisation of beneficiary bases to ensure support reaches the most vulnerable.
• Introduction of sunset or exit clauses, especially for non-merit and general unconditional transfers.
• Discontinuation of off-budget financing mechanisms for welfare schemes.

• The Commission emphasised that welfare policies must align with fiscal responsibility and deficit reduction goals, rather than becoming permanent entitlements without review.

Why in News?

• After months of tariff-driven tensions, India–US economic relations have witnessed a significant thaw following a telephonic conversation between the Indian Prime Minister and the U.S. President.
• The U.S. has agreed to reduce its reciprocal tariff on “Made in India” products to 18%, down sharply from an effective 50% imposed in 2025.
• The announcement signals a possible reconfiguration of India–US trade ties amid global supply chain realignments and geopolitical churn. 

What’s in Today’s Article?

• Key Developments
• Strategic Significance
• Challenges and Concerns
• Way Forward
• Conclusion

Key Developments:

• Reduction in U.S. tariffs on Indian goods:
  • The U.S. will reduce reciprocal tariffs on Indian exports from 50% to 18%.
  • This includes rollback of 25% tariff, and an additional 25% penalty imposed due to India’s import of Russian oil.
  • The Indian PM termed this a boost to Make in India, improving market access for Indian exports.
• Claim of a broader trade deal:
  • President Trump announced that India and the U.S. have “agreed” to a trade deal.
  • According to Trump, India has committed to reducing tariff and non-tariff barriers on U.S. goods (claimed to be moving towards “zero”), purchasing over $500 billion worth of U.S. products, including -
    • Energy (natural gas, coal),
    • Technology,
    • Agricultural goods, and
    • Nuclear equipment.
  • For perspective, India’s total goods imports in FY25 were $720.24 billion.
• Energy and geopolitics:
  • Trump claimed that India has agreed to stop buying Russian oil, increase imports from the U.S. and potentially Venezuela.
  • These assertions have not yet been officially confirmed by India’s Ministry of External Affairs (MEA).
  • The claims link trade concessions to broader U.S. strategic objectives, including ending the Russia–Ukraine war.
• Strategic timing and diplomatic context:
  • The announcement coincided with External Affairs Minister S. Jaishankar’s visit to the U.S. (Feb 2–4).
  • He is participating in the Critical Minerals Ministerial, focused on supply chain resilience, clean energy transition, and reducing dependence on China in critical minerals.
  • India, the U.S., and other mineral-rich countries are expected to sign a non-binding framework covering mining, processing, recycling, and pricing mechanisms.

Strategic Significance:

• India as a counterweight to China:
  • The tariff cut reinforces the U.S. view of India as a strategic ally and counterweight to China.
  • With Western economies imposing anti-dumping duties and trade restrictions on Chinese products, India gains a relative advantage in accessing U.S. and EU markets.
• Macroeconomic and market implications:
  • The deal was seen as critical amid concerns over capital outflows, pressure on the rupee.
  • Expectations include improved investor sentiment, potential strengthening of the rupee, and a positive market response.
• India’s expanding trade footprint:
  • With trade arrangements now in place with the U.S., UK, and EU, India is better positioned than many East Asian economies that rely heavily on Chinese investment.
  • A tentative thaw in India–China trade relations adds another layer of complexity.

Challenges and Concerns:

• Ambiguity in the fine print:
  • The actual benefits depend on the detailed terms of the agreement, which remain unclear.
  • Past experience suggests that U.S. negotiations under President Trump tend to be extractive.
• Energy and strategic autonomy: Any formal commitment to halt Russian oil imports could constrain India’s strategic autonomy and energy security.
• Dependence on China: India’s imports from China exceeded $112 billion last year. China’s dominance in rare earth elements has already impacted Indian sectors such as automobiles.
• Risk of Chinese retaliation: China has warned of consequences if trade agreements are concluded at its expense, raising concerns of indirect economic or supply-chain retaliation.
• Domestic political reactions: The opposition criticised the move, alleging India had “capitulated” under U.S. pressure.

Way Forward:

• Clarity and transparency: India must ensure that commitments—especially on tariffs, energy imports, and non-tariff barriers—are clearly defined and mutually balanced.
• Leverage export: Leverage improved access to the U.S. market to boost manufacturing, value-added exports, and employment.
• Supply chain diversification: Use platforms like the Critical Minerals Ministerial to reduce dependence on China.
• Strategic balancing: Maintain autonomy in energy sourcing and foreign policy while deepening ties with the West.
• Domestic capacity building: Align trade gains with Make in India, PLI schemes, and MSME competitiveness.

Conclusion:

• The reduction of U.S. tariffs on Indian goods to 18% marks a decisive reset in India–US trade relations and underscores India’s rising strategic relevance in a fragmented global trade order.
• While the move opens significant economic and geopolitical opportunities, its long-term value for India will hinge on the fine print, preservation of strategic autonomy, and the ability to convert improved market access into sustained export-led growth.

Context

• India’s Union Budget 2026–27 signals a decisive shift away from pandemic-era crisis management towards a borrowing-led development strategy anchored in public capex.
• By targeting a fiscal deficit of 4.3% of GDP and expanding public investment to ₹12.2 lakh crore, the government positions infrastructure spending as the central driver of long-term growth.
• This approach reflects confidence in India’s macroeconomic stability and reframes public investment and MSME support as permanent pillars rather than temporary stimulus.
• Yet, beneath this stability lies a growing tension between capital formation and employment outcomes.

Towards a Growth Doctrine

• For much of India’s post-independence history, capital expenditure expanded or contracted based on revenue conditions.
• That framework changed after 2020–21, when capex became the organising principle of fiscal policy.
• Its share in total expenditure rose from about 12% to over 22%, reflecting a strategic commitment to public investment-led expansion.
• The logic is familiar: public spending crowds in private investment, raises productivity, and generates jobs.
• However, labour indicators suggest that this transmission is weakening. Youth NEET rates (ages 15–29) remain between 23% and 25%, indicating that a significant share of young Indians remains outside education, employment, or training even as investment accelerates.
• Growth, while strong on aggregate, is no longer translating automatically into broad-based labour market participation.

A Structural U-Turn

• Sectoral employment trends reveal a deeper structural reversal. Construction, the sector most directly linked to infrastructure spending, has seen declining job intensity.
• Its employment elasticity fell from 0.59 in the pre-COVID period (2011–12 to 2019–20) to 0.42 in the post-COVID years (2021–22 to 2023–24).
• Record infrastructure spending is now associated with fewer jobs per unit of investment than in the past.
• The shift in agriculture is even more concerning. Instead of releasing labour as productivity rises elsewhere, the sector has begun reabsorbing workers.
• Employment elasticity jumped from 0.04 before COVID to 1.51 after, indicating distress-driven fallback into low-productivity activity.
• Together, these trends represent a structural U-turn: India is modernising its physical assets while its workforce drifts back toward subsistence.

Capital Intensity and Wage Divergence

• The employment shortfall is closely tied to the production structure reinforced by the capex turn. Public investment increasingly favours capital-intensive processes.
• While net value added per worker has risen, wages have lagged, creating a widening gap between productivity gains and labour income.
• These gains are largely captured as profits, rather than shared with workers.
• Industrial composition reinforces this bias. Most factories remain small and contribute modestly to output, while larger firms, better positioned to exploit new logistics and infrastructure, dominate value creation but generate limited employment.
• MSMEs, particularly in manufacturing, struggle to scale, compete, or integrate into capital-heavy supply chains.
• The outcome is a dual economy: a high-productivity, capital-driven upper tier that fuels headline GDP growth, and a vast lower tier that absorbs workers through informality, self-employment, and low-wage activity with weak income growth.

Conclusion

• Fiscal strategy and labour outcomes together suggest a reordering of priorities. Employment is increasingly treated as an indirect outcome of growth rather than a co-equal objective.
• Inclusion in the growth process depends on formal skills, urban location, and compatibility with automation.
• Those outside this profile adjust downward into informal or subsistence work. Even within the organised sector, wage growth remains muted.
• The economy continues to expand, but without broad absorption of labour. The central challenge ahead is not sustaining growth alone, but reshaping it to reduce inequality and reconnect capital accumulation with employment creation.

Context

• World Wetlands Day 2026 (2^nd February), observed under the theme Wetlands and traditional knowledge: Celebrating cultural heritage, draws attention to the deep connections between people and Wetlands in India.
• For centuries, communities have depended on water bodies not only for survival but also for culture, identity, and collective wellbeing.
• These landscapes represent a convergence of ecology and society, where Traditional Knowledge has shaped sustainable interactions with nature.
• Yet, despite their value, wetlands today face accelerating decline, raising urgent questions about how Heritage and modern governance can be aligned to secure their future.

Traditional Knowledge and the Cultural Ecology of Wetlands

• Across India, wetlands have historically supported Livelihoods through locally adapted practices that balanced use and protection.
• In Tamil Nadu, interconnected tanks or kulams regulated water for agriculture, while in Kerala, kenis ensured drinking water and ritual continuity.
• Fishing communities in Andhra Pradesh developed seasonal practices that sustained both people and Ecosystems.
• These systems were governed collectively and refined over generations, embedding conservation within daily life.
• Such examples reveal wetlands as socio-ecological systems rather than vacant land.
• They demonstrate that cultural memory and local practices can inform present-day approaches to Conservation, especially when communities remain active stewards rather than passive beneficiaries.

Policy Frameworks and the Crisis of Implementation

• India possesses an extensive Policy architecture for wetland protection, including the Wetlands (Conservation and Management) Rules, 2017, the National Plan for Conservation of Aquatic Ecosystems, the Coastal Regulation Zone framework, and Ramsar commitments.
• Together, these address a wide range of wetland types and ecological contexts.
• However, the central challenge lies in Implementation. Large proportions of wetlands have disappeared in recent decades, while many remaining sites show severe Degradation.
• Delays in notification, weak enforcement, fragmented institutional roles, and poor coordination undermine the effectiveness of existing laws.
• International recognition through Ramsar designation carries responsibility, but protection on paper often fails to translate into action on the ground.

Development Pressures and Ecological Degradation

• Wetlands are especially vulnerable because they lie at the intersection of land, water, and development.
• Rapid Urbanisation, infrastructure expansion, and land conversion have erased or fragmented many natural systems.
• Alterations to water flow, through dams, embankments, sand mining, and groundwater extraction, disrupt wetland Hydrology, weakening their ecological functions.
• Pollution compounds these pressures. Untreated sewage, industrial effluents, agricultural runoff, and solid waste trigger eutrophication, biodiversity loss, and declining water quality.
• Urban wetlands are often expected to absorb floods, manage waste, and remain biodiverse, despite lacking legal buffers or adequate protection.
• In coastal regions, rising seas and extreme weather linked to Climate change intensify risks, trapping Mangroves and lagoons between development and erosion.

Institutional Capacity and Governance Gaps

• Beyond environmental stressors, limited Capacity within institutions remains a major obstacle.
• State wetland authorities are frequently understaffed and underfunded, with gaps in technical expertise, enforcement, and community engagement.
• Weak planning and monitoring reflect broader challenges in Governance, where multiple mandates compete without effective coordination.
• Without skilled personnel and clear accountability, even well-designed frameworks struggle to deliver results.

Towards Pragmatic, Integrated Solutions

• Addressing these challenges requires a shift from isolated projects to long-term programmes, and from cosmetic interventions to ecological Restoration.
• Clear notification and demarcation of wetlands, supported by transparent mapping and participatory verification, form the foundation of protection.
• Urban and peri-urban wetlands require strict control of inflows; wetlands cannot replace sewage treatment plants.
• At the landscape scale, protecting Catchments and restoring hydrological Connectivity are essential to maintaining wetland functions.
• Coastal and riparian wetlands should be treated as natural Infrastructure for disaster risk reduction, offering protection comparable to engineered systems.
• Equally important is sustained investment in training and institutions, linking wetland management outcomes to tangible benefits for local people and fostering long-term stewardship.

Conclusion

• The future of India’s wetlands depends on collective responsibility and governments must enforce and coordinate.
• Cities must abandon the notion of wetlands as wastelands, industries must prevent pollution at source, and educational institutions must train skilled practitioners.
• Citizens, too, play a crucial role in defending local water bodies as shared assets.
• By aligning science with policy and grounding both in the experience of Communities, wetlands can be restored as living systems that support Resilience and Sustainability.
• In doing so, India safeguards not only its water and biodiversity, but also a vital foundation for social and ecological stability.