On May 20 2025, India and the world witnessed significant developments across various sectors. India saw several key developments this week across governance, employment, technology, and social issues. The government strengthened its digital ambitions through the India Semiconductor Mission. A new format of the Periodic Labour Force Survey was launched for better labour data. Justice B.R. Gavai took oath as the 52nd Chief Justice of India, and a new UPSC Chairman was appointed. Puducherry renewed its demand for full statehood, while the World Food Prize 2024 highlighted global efforts in food security.

Awareness regarding daily UPSC current affairs is crucial for cracking the UPSC Prelims, excelling in UPSC Mains. It helps perform well in the UPSC personality test, thus becoming an informed and effective UPSC civil servant.

Below are the current affairs and headlines of the day taken from The Hindu, Indian Express, Press Information Bureau & All India Radio as required for UPSC preparation:

Covid-19 Cases Spiking In India

Economic Capital Framework

Why in the News?

• The Reserve Bank of India (RBI) has initiated an internal review of its Economic Capital Framework (ECF), focusing particularly on the Contingency Risk Buffer (CRB).
• The Ministry of Finance is reportedly conducting a parallel review of RBI’s capital buffers, indicating a difference in approach regarding optimal surplus transfer.
• A lower CRB could result in higher dividend transfers to the government, which is seeking to boost its defence expenditure amid rising geopolitical tensions.
• This review follows the expiration of the Bimal Jalan Committee’s recommendations in June 2024.

What is the Economic Capital Framework (ECF) of the RBI?

• The ECF is a risk management policy that governs:
  • The capital and reserves that the RBI should maintain to ensure financial stability.
  • The quantum of surplus or dividend that the RBI can transfer to the Central Government under Section 47 of the RBI Act, 1934.
• The ECF seeks to strike a balance between risk provisioning and fiscal support, ensuring the RBI's autonomy and India's macroeconomic stability.

Objectives of the ECF:

• To quantify the risk faced by the RBI and ensure adequate reserves and capital provisioning.
• To determine a transparent, rule-based method for calculating surplus transfers to the government.
• To strengthen the financial resilience of the RBI while also supporting the government’s developmental and fiscal objectives.
• To ensure that revaluation gains and unrealized profits are not used for short-term fiscal needs.

Key Components of the ECF:

1. Contingency Risk Buffer (CRB):
   • A precautionary buffer maintained for risks arising from monetary, credit, operational, and fiscal pressures.
   • Recommended to be 5.5–6.5% of the RBI’s total balance sheet.
   • Acts as a shock absorber during times of economic or financial distress.
2. Total Economic Capital:
   • Comprises the RBI’s capital, reserves, risk provisions, and revaluation balances (currency/gold/foreign assets).
   • Reflects both realized and unrealized gains, although only realized profits are transferred as surplus.
3. Surplus Transfers:
   • Transferred annually under Section 47 of the RBI Act.
   • Recent transfer figures:
     • FY 2023–24: ₹2.11 lakh crore (highest ever)
     • FY 2022–23: ₹87,416 crore
     • FY 2021–22: ₹30,307 crore
     • FY 2020–21: ₹99,122 crore

Features of the Economic Capital Framework:

• Ensures long-term financial sustainability of the central bank.
• Establishes a clearly defined risk tolerance level for capital adequacy.
• Promotes transparency and accountability in fiscal-monetary interactions.
• Supports fiscal planning, especially for infrastructure, welfare schemes, and defence.
• Mandates a periodic review (every 5 years) of capital framework guidelines.

Background of the Economic Capital Framework:

• Triggered by a debate (2017–18) between the RBI and the Ministry of Finance over:
  • The quantum of reserves maintained by the RBI.
  • The need for higher surplus transfers to support government expenditure.
• In 2018, a committee was formed under Dr. Bimal Jalan, former RBI Governor, to review the framework.

Bimal Jalan Committee (2018):

• Objective: To revisit the RBI’s capital reserves and surplus distribution policy.
• Members: Dr. Bimal Jalan (Chair), Dr. Rakesh Mohan (Vice-Chair), and representatives from RBI and Government.
• Key Recommendations:
  • Maintain CRB between 5.5–6.5% of RBI's balance sheet.
  • Transfer only realized surplus (i.e., net income), not revaluation gains.
  • Review the ECF every five years.
  • Maintain the RBI’s financial autonomy and avoid ad-hoc transfers.
• The Subrahmanyam Committee (1997) and Malegam Committee (2013) also looked into aspects of RBI's capital management.

Benefits of the Economic Capital Framework:

• Provides a systematic and consistent method for reserve adequacy assessment.
• Reduces fiscal uncertainty for the government by creating predictable surplus transfer norms.
• Preserves the institutional independence of the RBI while addressing government needs.
• Enhances investor confidence by ensuring RBI remains adequately capitalized.
• Helps maintain macroeconomic and financial stability, especially during crisis periods like pandemics or geopolitical shocks.

Conclusion:

• As India plans to expand defence and infrastructure spending, surplus transfers from RBI gain fiscal importance. However, lowering the CRB to increase immediate dividends may compromise RBI’s financial buffer, especially in turbulent times. A balanced approach, respecting both financial prudence and fiscal needs, is essential. The ongoing review must uphold RBI's autonomy, ensure macroeconomic stability, and align with long-term risk management principles.

New Caledonia's Political Crisis

Why in the News?

• High-stakes talks led by French Overseas Minister to finalize a new political accord for New Caledonia collapsed on May 8, 2025, plunging the French Pacific territory into political uncertainty.
• The breakdown follows years of unresolved issues around independence, autonomy, and electoral reforms.

What is the Issue?

• New Caledonia is deeply divided between pro-independence (mainly Kanak indigenous population) and loyalist (pro-France, mostly settlers and urban population) factions.
• Tensions have escalated since the contested 2021 referendum, which was boycotted by the pro-independence FLNKS (Kanak and Socialist National Liberation Front).
• France proposed unfreezing the electoral roll, which would expand voting rights to newer residents—a move seen by Kanaks as diluting their political representation.
• The failure of talks has led to riots, 14 deaths, and a deadlock over the territory’s political future.

New Caledonia:

• Location: A French territory in the Southwest Pacific Ocean.
• Population: ~2,71,400 people.
• Status: Overseas territory of France with significant autonomy.
• Demographics:
  • Kanaks (indigenous Melanesian people) form a significant population.
  • European settlers (Caldoches) and others form the rest.

1998 Nouméa Accord:

• Background: Signed after violent conflicts (1984–1988) and the Matignon Accords (1988).
• Recognized the historical injustices and “trauma” suffered by the Kanak people.
• Granted autonomy to New Caledonia:
  • Created a local Congress with law-making powers.
  • Established New Caledonian citizenship to limit voting rights to long-term residents.
• Mandated three referendums (2018, 2020, 2021) to decide on independence.
  • 2018: 43.6% voted for independence.
  • 2020: 46.7% voted for independence.
  • 2021: 96.5% voted against independence, but boycotted by FLNKS over COVID-19 and traditional mourning practices.

Recent Developments and Collapse of Talks:

• In May 2024, France proposed “unfreezing” electoral rolls, enabling newer residents (non-Kanak) to vote in provincial elections.
• Seen by Kanaks as an attempt to undermine their political influence.
• Sparked widespread riots and loss of lives.
• French minister attempted to broker a compromise:
  • Proposed a “sovereignty in partnership” model:
    • Enhanced self-rule and international recognition.
    • Delegation of sovereign functions (like judiciary, defense) to France.

Background: France–New Caledonia Relations

• Colonized by France in 1853.
• Used as a penal colony.
• Indigenous Kanaks marginalized for over a century.
• Political awakening and demands for self-determination surged in the 1980s.

Kaladan Multi-Modal Transit Transport Project

Relevance for UPSC Exam

• Prelims and Mains: What is the Kaladan Multi-Modal Transit Transport Project (KMMTTP)?, Background, Why Northeast-Kolkata Link via Myanmar and Not Bangladesh?, Objectives, Benefits, Key Areas of Concern, Way forward.

Why in the News?

• The Kaladan Multi-Modal Transit Transport Project (KMMTTP) has gained renewed strategic importance due to:
  • A deterioration in India-Bangladesh relations after the ouster of pro-India Prime Minister Sheikh Hasina in 2024.
  • The Ministry of Road Transport and Highways (MoRTH) has sanctioned a new 166.8-km four-lane highway from Shillong to Silchar, which will be extended to Mizoram and connected to the KMMTTP.
  • The project is seen as an alternative to the vulnerable Siliguri Corridor (“Chicken’s Neck”) and Bangladesh-based connectivity routes.

What is the Kaladan Multi-Modal Transit Transport Project (KMMTTP)?

• A strategic India-Myanmar connectivity initiative designed to connect the eastern ports of India (Kolkata, Vizag) to the Northeastern states via Myanmar’s Rakhine and Chin states.
• Involves multi-modal transportation — combining sea, river, and road travel to reach the landlocked Northeast.

Background:

• Feasibility studies began in the late 1990s.
• Official framework agreement signed between India and Myanmar in 2008.
• Initially scheduled for completion by 2016, but delays ensued due to:
  • Ethnic conflicts in Myanmar.
  • Administrative hurdles and logistical difficulties.
  • The 2021 Myanmar military coup and the escalating civil war.
• A new contract was signed in 2022 with IRCON International Limited, a PSU under Indian Railways, for completing the road leg with a 40-month timeline (extendable for civil unrest and war).

Why Northeast-Kolkata Link via Myanmar and Not Bangladesh?

• Geopolitical shift: After Bangladesh’s interim leadership labeled the Northeast as “landlocked” and downplayed India’s access rights, strategic reliance on Bangladesh became risky.
• Siliguri Corridor vulnerability: The “Chicken’s Neck” is only 20 km wide and is a potential chokepoint during conflict.
• Bangladesh alternative routes uncertain: Pre-Partition linkages to Chattogram and Mongla ports in Bangladesh are now unreliable.

Key Features:

• Multi-modal structure:
  1. Sea route: Kolkata to Sittwe Port in Myanmar (~539 km) – Completed.
  2. Inland waterway: Sittwe to Paletwa via Kaladan River (~158 km) – Completed.
  3. Roadway: Paletwa to Zorinpui at the Indo-Myanmar border (~108 km) – Incomplete; last 50 km pending.
  4. Indian road leg: Zorinpui to Aizawl and Shillong – Under active planning and construction.
• Checkposts and customs: Integrated Customs & Immigration Checkpost at Zochawchhuah-Zorinpui operational since 2017.

Objectives:

• Bypass Bangladesh as a transit route due to strategic vulnerabilities.
• Enhance connectivity to India’s Northeastern states.
• Promote India’s Act East Policy and strengthen ties with ASEAN countries.
• Stimulate economic development in both Northeast India and western Myanmar (especially underdeveloped Rakhine State).
• Serve as a strategic counterbalance to China’s presence in the Indo-Pacific and its Belt and Road Initiative (BRI).

Benefits of the Project:

• Reduced distance and time: Cuts distance between Kolkata and Mizoram by ~1,000 km and saves 3–4 days of transit.
• Strategic redundancy: Offers an alternate route to Siliguri Corridor, strengthening national security.
• Economic upliftment: Facilitates trade, tourism, and investment in Northeast India and Rakhine.
• Geopolitical leverage: Reduces over-dependence on Bangladesh and strengthens India’s regional presence.
• Humanitarian and developmental dividends: Brings infrastructure and employment to insurgency-prone and underdeveloped regions.

Key Areas of Concern:

• Security Issues:
  • Much of Rakhine is controlled by the Arakan Army, labelled as a terrorist group by the Myanmar junta.
  • Civil conflict and Myanmar’s political instability post-2021 military coup.
  • IRCON’s construction progress is slow due to ground-level tensions.
• Diplomatic Uncertainty:
  • India’s balancing act between Myanmar's military regime and local militias complicates diplomacy.
  • Myanmar’s civil war makes state-to-state agreements fragile.
• Operational challenges:
  • Difficult terrain in Chin and Rakhine regions.
  • Slow pace of sub-contracting and bureaucratic delays.
  • Budget overruns and shifting completion targets.

Way Forward:

• Engage with ethnic groups in Myanmar, especially the Arakan Army, for ensuring security and operational continuity.
• Diplomatic parallelism: Maintain open communication with both Myanmar's military rulers and local stakeholders to insulate the project from political disruptions.
• Expedite Indian leg completion: Finish high-speed corridors from Shillong to Zorinpui via Silchar and Aizawl to maximize usage once Myanmar segments are ready.
• Strategic funding and flexibility: Allocate funds with contingency provisions for conflict and instability.
• Leverage regional forums like BIMSTEC and ASEAN to build multilateral consensus and security umbrella for such transnational infrastructure.