16 January 2026

• India has been inducted belatedly into Pax Silica, a US-led grouping focused on AI-era supply chains.
• Similar pattern seen earlier with India’s delayed entry into the Minerals Security Partnership (2022).
• Highlights the capability-based nature of US- led strategic coalitions amid efforts to counter China’s dominance in critical technologies.

Key Points

• Aim of Pax Silica
  • Reduce “coercive dependencies” in critical minerals, semiconductors, AI infrastructure.
  • Secure the entire AI value chain: minerals → chips → data centres → logistics → security.
• Initial Members (Before India)
  • Japan, South Korea (manufacturing & chip ecosystems)
  • Netherlands (advanced lithography monopoly)
  • Australia (critical minerals)
  • Singapore (global logistics hub)
  • UK, Israel, UAE (AI innovation & capital)  
• Reason for India’s Initial Exclusion
  • Limited critical mineral reserves.
  • Weak processing & refining capacity.
  • Absence of frontier semiconductor manufacturing technologies.
• Strategic Signal
  • Participation in tech groupings is not automatic; requires tangible economic–technological leverage.

Static Linkages

• Semiconductor value chain: design → fabrication → assembly → testing.
• Critical minerals as strategic resources (economic & national security).
• Supply chain resilience as part of geo- economics.
• Technology control regimes shaping global power distribution
• Industrial policy and state support for strategic sectors.

Critical Analysis

• Opportunities
  • Access to trusted technology ecosystems.
  • Potential US investment in India’s semiconductor and AI sectors.
  • Alignment with India’s China+1 supply chain strategy.
  • Supports initiatives like Semicon India Programme and PLI schemes.
• Concerns
  • India risks being a rule-taker rather than rule- maker.
  • Over-dependence on US-centric frameworks may affect strategic autonomy.
  • Possibility of Chinese economic retaliation (electronics, minerals).
  • Persistent gaps in R&D depth, skilled manpower, and processing capacity.

Way Forward

• Scale up critical mineral processing & refining (not only mining).
• Secure overseas mineral assets (Africa, Latin America).
• Strengthen chip design, advanced packaging, and fabrication capabilities.
• Integrate private sector, startups, and academia in AI–semiconductor R&D.
• Follow multi-alignment: engage Pax Silica without excluding other partners.
• Use forums like G20, QUAD, I2U2 to shape inclusive tech governance norms.

EU DEAL

KEY HIGHLIGHTS

• India is close to signing a Free Trade Agreement (FTA) with the European Union.
• Most chapters are finalised, but carbon tax– related issues are the biggest hurdle.
• The EU has introduced a new climate-related trade measure called Carbon Border Adjustment Mechanism (CBAM).
• This directly affects India’s key exports like steel and aluminium.

What is CBAM?

• CBAM is a carbon tax on imports entering the EU.
• Purpose:
  • Prevent carbon leakage (shifting production to countries with weaker climate rules).
  • Ensure imported goods bear the same carbon cost as EU-made goods.
• It applies to carbon-intensive sectors, not consumer goods.
• Covered sectors include:
  • Steel
  • Aluminium  
  • Cement
  • Fertilisers  Chemicals
  • Power sector

Why is CBAM a problem for India?

• India’s manufacturing is more carbon-intensive than EU industries.
• India exports mainly:
  • Iron & steel
  • Aluminium
• Under CBAM:
  • Indian exporters must pay extra charges at EU borders.
  • This reduces price competitiveness.
• It may negate tariff benefits gained through the FTA.

Why is Agriculture excluded from the India–EU FTA?

• For India:
  • Fear of impact on farmers’ livelihoods.
  • Resistance to GM crops (e.g., corn, soya).
• For EU:
  • Strong farmer lobbies.
  • Recent protests against EU– Mercosur deal.
• Hence, both sides kept agriculture outside the negotiation scope.

Strategic Importance of India–EU FTA

• EU is:
  • India’s third-largest trading partner.
• FTA helps India:
  • Diversify exports away from the US.
  • Boost labour-intensive sectors (textiles, apparel).
  • Integrate into global value chains.
• Also strengthens India–EU strategic partnership.

Why CBAM raises a global concern?

• Developing countries argue:
  • It violates Common But Differentiated Responsibilities (CBDR) under climate agreements.
  • It acts as “green protectionism”.
• Rich countries:
  • Have higher historical emissions.
  • Still impose costs on late-industrialising economies.

What should India do?

• Negotiate:
  • Transitional relief or exemptions under CBAM.
• Domestic reforms:
  • Invest in green steel and aluminium.
  • Improve carbon measurement systems (MRV).
• Policy alignment:
  • Use FTAs to promote clean manufacturing.
• Support MSMEs:
  • Access to green finance and technology.

UNCERTAIN YEAR, PUSH INDIA-EU FTA

• High-level India–Germany engagement and announcements on defence production and mobility have revived momentum for an India– EU Free Trade Agreement (FTA).
• India–EU FTA talks, stalled since 2013, are being revisited ahead of the India–EU Summit.
• Global economic uncertainty due to policy shifts in the United States and slowdown in China has increased relevance of regional trade agreements.
• India has recently concluded the India–UK FTA, signalling a strategic pivot towards diversified trade partnerships.

Key Points

• India–EU FTA negotiations began in 2007; stalled due to differences over:
  • Environmental and labour standards  Data protection and digital trade
  • Market access in agriculture and automobiles
• EU is India’s 4th largest trading partner (goods + services).
• Cumulative EU FDI in India (2024): ~USD 120 billion – largest investor bloc.
• Germany is the largest economy in the EU and a key driver of EU trade policy.
• Possible inclusion of Mode 4 (Movement of Natural Persons) under World Trade Organization framework favours India’s services sector.
• India’s services exports show resilience despite global trade slowdown.

Static Linkages

• Comparative Advantage: Trade benefits arise when countries specialise (NCERT).
• FDI–Trade Complementarity: FDI enhances technology diffusion and export capacity (Economic Survey).
• Services-led Growth Model: Services contribute ~55% of India’s GDP and ~40% of exports.
• Tariffs and Inflation: Higher tariffs raise domestic prices and distort consumption.
• Demographic Dividend: Skilled labour mobility enhances factor income gains.

Critical Analysis

• Opportunities
  • Reduces over-dependence on US and China-centric trade.
  • Enhances services exports, especially IT, healthcare, and engineering.
  • Mode 4 inclusion supports skilled Indian professionals abroad.
  • Technology-rich EU FDI supports manufacturing and infrastructure.
  • Strategic convergence amid global fragmentation.
• Challenges
  • EU’s stringent environmental and labour norms raise compliance costs.
  • Risk of widening goods trade deficit due to tariff asymmetry.
  • Domestic MSMEs face competitive pressure.
  • Policy space concerns over data localisation and regulatory sovereignty.

Way Forward

• Negotiate a balanced FTA covering goods, services, and investment.
• Secure Mode 4 commitments with safeguards.
• Align domestic standards gradually with global norms.
• Leverage Germany for high-end technology and green FDI.
• Integrate FTA outcomes with Make in India, Skill India, and Digital India.

• Proposed Viksit Bharat Guarantee for Rozgar (VB-G RAM G) to replace the existing rural employment framework.
• Promises 125 days of work but removes statutory work guarantee.
• Shifts from demand-driven to conditional/supply-controlled employment.
• Concerns over gendered impact, especially on rural women workers.
• Bill passed without consultation with workers, states, or civil society.

Key Points (Facts & Data)

• Women’s share in total person-days:
  •  48% (2008-09) → 57.94% (2024-25) (MoRD data).
• India’s FLFPR increase largely due to:
  • Unpaid family labour, not regular wage employment (PLFS).
• Legal features that supported women:
  • Equal wages for men and women.
  • Worksite proximity.  
  • Crèche provisions.
  • Transparent muster rolls.
• Rural women predominantly engaged in:
  • Agricultural casual labour and informal work.
• Removal of guaranteed work reduces:
  • Fallback employment option.
  • Wage bargaining power.

Static Linkages

• Article 21 – Right to livelihood (Judicial interpretation).
• Article 39(a) – Adequate means of livelihood.  
• Article 41 – Right to work (DPSP).
• NCERT (Indian Economic Development):
  • Disguised unemployment.
  • Informalisation of labour.
• Economic Survey:
  • Public works as counter-cyclical employment tools.
• PRS India:
  • Demand suppression and delayed wages weaken outcomes.

Critical Analysis

• Positive Aspects
  • Higher nominal promise of employment days.  
  • Scope for fiscal restructuring.
  • Potential administrative streamlining.
• Concerns / Risks
  • Dilution of legal right to work.
  • Shift from rights-based to discretion-based welfare.
  • Women likely to be first excluded during labour surplus.
  • Reinforces patriarchal perception of women as secondary earners.
  • Increased dependence on:
    • Landowning caste-class groups.
    • Informal, low-wage agricultural labour.
  •  Weakens gender gains achieved over two decades.

Way Forward

• Retain statutory demand-driven work guarantee.
• Introduce gender-specific minimum work quotas.
• Strengthen:
  • Timely wage payments.
  • Worksite facilities (crèches, drinking water).
• Conduct independent impact assessment before rollout.
• Institutionalise stakeholder consultation.  
• Align rural employment policy with:
  • SDG-5 (Gender Equality).  
  • SDG-8 (Decent Work).

CHINA EXPORTS HOLD, PAIN AREAS

Context of the News

• 2025: US imposed steep reciprocal tariffs; China faced peak tariff rates up to 145% under the administration of Donald Trump.
• Objective: Reduce US trade deficit; counter alleged Chinese unfair trade practices (subsidies, non-tariff barriers, currency management).
• Result: China’s exports to the US declined by~20%, but its overall trade surplus rose to ~$1.19 trillion (2025) from ~$993 billion (2024).
• Export decline to US offset by higher exports to ASEAN, India, EU, Africa.
• World Bank: China’s growth remained robust due to fiscal stimulus and export diversification.
• International Monetary Fund: Linked China’s export strength to real exchange rate depreciation; advised exchange rate flexibility and consumption-led growth.

Key Points

• Tariffs altered bilateral trade, not China’s aggregate trade surplus.
• China’s dominance in global manufacturing and GVCs enabled trade diversion.
• Export resilience cushioned domestic demand slowdown
• Rising Chinese exports intensify competitive pressure in third markets
• Currency appreciation pressure on China increasing.
• Policy challenge during 15th Five-Year Plan (2026–2030).

Static Linkages

• Trade Balance vs Current Account (NCERT Macro): Bilateral deficits ≠ overall surplus reduction.
• Trade Diversion effect of tariffs.
• Real Exchange Rate and export competitiveness (Economic Survey).
• Marshall–Lerner condition relevance.
• Export-led vs Consumption-led growth models.
• Global Value Chains and manufacturing scale advantages.

Critical Analysis

• Tariffs failed to structurally correct US trade deficit.
• Trade diversion increases global overcapacity concerns.
• Export dependence delays China’s domestic rebalancing.
• Currency management risks financial volatility.
• Third-country industries face import surge pressures.

Way Forward

• Shift towards consumption-led growth in China.
• Greater exchange rate flexibility.
• Multilateral trade reforms under WTO framework.
• For India: enhance manufacturing competitiveness; guard against import surges.