A villager poses with lithium stones in Jammu and Kashmir’s Reasi district.
| Photo Credit: PTI

The story so far: In late June, the Centre declared the winning bidders for mining rights in six blocks of critical minerals, including graphite, phosphorite and lithium, for which India largely relies on imports. These are the first private players awarded such rights under the revamped Mines and Minerals law.

Why are critical minerals important?

Minerals such as copper, lithium, nickel, cobalt are known as critical minerals, as they along with some rare earth elements, are essential for the world’s ongoing efforts to switch to greener and cleaner energy. As per the International Energy Agency (IEA), lithium demand rose by 30% in 2023, followed by nickel, cobalt, graphite and rare earth elements which saw an 8% to 15% growth, with the aggregate value of such minerals pegged at $325 billion. In its Global Critical Minerals Outlook 2024 report, the agency has flagged that the world’s goal to limit global warming to 1.5 degrees Celsius in the net zero emissions scenario, would translate into very rapid growth in demand for these minerals. By 2040, the demand for copper is expected to rise 50%, double for nickel, cobalt and rare earth elements, quadruple for graphite and eightfold for lithium, which is crucial for batteries. The development of sustainable supply chains for such minerals is, therefore, an unavoidable task. In India, the lack of ready reserves of critical minerals has resulted in 100% import dependence for minerals like lithium, cobalt, and nickel. Late last month, Union Mines Minister G. Kishan Reddy highlighted that 95% of India’s copper requirements are met through imports. China is a key supplier or processor of many of these items.

What is being done to spur production?

While India has natural reserves of some of these minerals, they haven’t been explored or tapped fully. For instance, India holds 11% of the world’s deposits of ilmenite, the main source of titanium dioxide used in many applications, but still imports a billion dollars of titanium dioxide a year, former Mines Secretary Vivek Bharadwaj once pointed out. Then there is the “lucky” discovery of lithium reserves in the Union Territory of Jammu and Kashmir (J&K) while the Geological Survey of India (GSI) was exploring the State’s terrain for limestone, which triggered hope of some self-sufficiency in the mineral. Announced as the first discovery of lithium in the country last February, these reserves were pegged at 5.9 million tonnes, enthusing the government to expedite its tapping.

Acknowledging that reliance on a few nations for the ores and processing of these minerals could pose significant vulnerabilities for Indian supply chains, the central government amended the Mines and Minerals (Development and Regulation) Act, 1957 in August 2023 to enable it to grant mining concessions for 24 critical and strategic minerals. By November, the first auctions of 20 critical mineral blocks, with the lithium block identified in J&K’s Reasi district on the list, were launched, followed by two more tranches with 18 more blocks offered this February and March. However, investor interest has been tepid — the auction of most of the first 20 blocks was scrapped for lack of adequate bidders. After a delayed process, the Mines Ministry on June 24, announced six winners from the maiden auction tranche for three blocks in Odisha, and one each in Tamil Nadu, U.P. and Chhattisgarh. The outcomes of the second and third round of auctions are still awaited, while the Ministry has initiated a fourth tranche, which includes 10 blocks that are being offered for the second time.

Why are some blocks not finding takers?

Among the first attempt blocks offered in the latest auction, two phosphorite blocks along with a glauconite block are in Chhattisgarh, while two blocks each are up for grabs in U.P. (phosphorite and rare earth elements), Karnataka (phosphate and nickel), and Rajasthan (potash and halite). A graphite block is being auctioned in Jharkhand and Arunachal Pradesh, with five additional blocks of graphite, tungsten and vanadium offered in the northeastern State for the second time. The ‘second attempt’ blocks also include a tungsten reserve in Tamil Nadu’s Madurai district, a cobalt and manganese block in Karnataka’s Shimoga, and a chromium and nickel block in Sindhudurg, Maharashtra.

As per industry experts, the reasons for low interest among miners for some of these blocks include the lack of adequate data on the potential reserves buried within them. Technology challenges also affect outcomes. For instance, the lithium block in J&K has clay deposits, and the technology for the mineral’s extraction from clay remains untested globally, pointed out Girishkumar Kadam, senior vice-president and group head for corporate sector ratings at ICRA.

When is domestic production likely to begin?

Given the preliminary stage of exploration for most of the domestic blocks being auctioned, their commercialisation and associated benefits are unlikely to fully accrue in the current decade ending 2030, ICRA said. “India’s manufacturing is thus likely to remain exposed to potential future supply shocks of these minerals till then,” it concluded. Apart from spurring exploration and attracting more miners, the Centre is looking to acquire overseas assets from key resource-rich regions as a parallel measure to bolster mineral security. The first such mine, for lithium brine, was acquired in Argentina this year by Khanij Bidesh India Limited, a joint venture of NALCO, Hindustan Copper, and Mineral Exploration Company. While it scouts for more assets, India has also joined the U.S.-led Mineral Security Partnership, a block consisting of large buyers and sellers of critical minerals.

As per a key finding of the Global Tax Evasion Report 2024, prepared by researchers at the EU Tax Observatory, global billionaires benefit from very low effective tax rates, which range between 0% and 0.5% of their wealth. 
| Photo Credit: Getty Images/iStockphoto

The story so far: French economist Gabriel Zucman has in a recent report commissioned by Brazil’s G-20 presidency recommended an annual 2% tax on individuals holding wealth exceeding $1 billion a suggestion intended to serve as the starting point for a global discussion on ensuring under-taxed billionaires are made to contribute more to reduce inequality worldwide. Finance Ministers of the G-20 group are set to meet in Rio de Janeiro on July 25-26, and the proposal is expected to be discussed at the meeting.

What exactly is the proposal?

Mr. Zucman, an economist who has extensively researched the accumulation, distribution and taxation of global income and wealth, has proposed the adoption of an internationally coordinated minimum tax standard for ensuring effective taxation of ultra-high-net-worth individuals. This he argues would be the basic requirement to safeguard global tax progressivity. At the minimum, he recommends that individuals possessing more than $1 billion in total wealth (assets, equity shares in both listed and unlisted companies, other ownership structures that enable participating in companies’ ownership, etc.) would be required to pay a minimum amount of tax annually that would be equal to 2% of their wealth.

Such a minimum tax on billionaires could potentially raise $200-$250 billion a year globally from about 3,000 individuals, and were it to be extended to cover those with a net worth exceeding $100 million, would add $100-$140 billion annually in global tax revenue.

What is the rationale for such a tax?

As per a key finding of the Global Tax Evasion Report 2024, prepared by researchers at the EU Tax Observatory, global billionaires benefit from very low effective tax rates, which range between 0% and 0.5% of their wealth. “When expressed as a fraction of income and considering all taxes paid at all levels of government (including corporate taxes, consumption taxes, payroll taxes, etc.), the effective tax rates of billionaires appear significantly lower than those of all other groups of the population,” the researchers write.

Mr. Zucman in his report to the G-20 presidency posits that the wealth of the top 0.0001% households, expressed as a fraction of world GDP, has surged more than fourfold since the mid-1980s. “In 1987, the top 0.0001% owned the equivalent of 3% of world GDP in wealth. This wealth gradually rose to 8% of world GDP on the eve of the global financial crisis of 2008-2009. It briefly fell during the crisis, and then rose fast to exceed 13% of world GDP in 2024.” The average annual growth rate of this population group’s wealth is 7.1% net of inflation. In contrast, over the same almost four-decade period, the average income of an adult grew annually by 1.3% net of inflation, and average wealth increased by 3.2% a year.

“As long as ultra-high-net-worth individuals keep having higher net-of-tax returns than the rest of the population, their share of global wealth will keep rising — an unsustainable path,” argues Mr. Zucman. Emphasising that “progressive taxation is a key pillar of democratic societies” that helps strengthen social cohesion and trust in governments to work for the common good, the French economist stresses that it is needed to help fund public goods and services. Better tax revenues are also crucial to meet the investments required to address the climate crisis.

Why moot such a tax now?

The French economist cites research that shows contemporary tax systems worldwide are not effectively taxing the wealthiest individuals. As a result ultra-high-net-worth individuals tend to pay less in tax relative to their income than other social groups, regardless of the specific tax design choices and enforcement practices of countries. Income taxes, which in principle constitute the main instrument of progressive taxation, fail to effectively tax ultra-high-net-worth individuals. This in turn deprives governments of substantial tax revenues and contributes to concentrating the gains of globalisation into relatively few hands, undermining the social sustainability of economic globalisation, he argues.

Also, the global social and political environment, and in some ways the regulatory climate too, are more conducive now to successfully implement such a proposal. He specifically cites the progress made in curtailing bank secrecy over the last 15 years through increased information exchange between countries, which according to the EU Tax Observatory has led to a decline in offshore tax evasion by an estimated factor of about three in less than 10 years.

The other major enabling factor is the ‘historic decision’ in 2021, when more than 130 countries and territories agreed to a common minimum corporate tax of 15% for large multinational companies (MNCs). The willingness on the part of countries worldwide to tax MNCs in a manner so as to prevent them from seeking to operate out of low or zero tax jurisdictions is, in the French economist’s opinion, a template that can be built upon now for taxing billionaires.

How much support does the proposal have?

Brazil, Latin America’s largest economy, is the main backer. France, Spain, Colombia, Belgium, the African Union and South Africa, which will assume the G-20 presidency next year, have also backed the idea.

Also, while U.S. Treasury Secretary Janet Yellen is reported to have said the U.S. could not support a global wealth levy, Mr. Zucman has cited President Joe Biden’s proposed minimum income tax targetting individuals with more than $100 million in wealth as yet another approach to tax the uber-rich. Mr. Biden’s proposal entails taxing the entire pre-tax return on wealth for ultra-high-net-worth Americans to a minimum individual tax rate of 25%, irrespective of whether the return comes from dividends, realised capital gains or unrealised gains, according to a Reuters report.

What is its relevance to India?

India has seen a disproportionately sharper increase in wealth at the top of the pyramid over the nine-year period to 2023, according to a study titled ‘Income and Wealth Inequality in India, 1922-2023: The Rise of the Billionaire Raj’ by Nitin Kumar Bharti, Lucas Chancel, Thomas Piketty and Anmol Somanchi. The authors of this working paper posit that “by 2022-23, top 1% income and wealth shares (22.6% and 40.1%) are at their highest historical levels and India’s top 1% income share is among the very highest in the world”. The authors of this study on inequality go on to suggest: “a ‘super tax’ on the very wealthy might be a good place to start. Not only would it serve as a tool for fighting the growing inequalities we are observing today, but it would also provide additional fiscal space for the Indian government to enhance spending on essential social expenditures (health, education, nutrition) which have historically been low compared to global standards, including other countries at similar income levels”.

“A tax of just 2% on the total net wealth of the 162 wealthiest Indian families in 2022 would yield revenue to the tune of 0.5% of national income (more than twice the central government’s budget expenditures on the National Rural Employment Guarantee Act in recent years),” they add.

Congress Rahul Gandhi shows a stock market movement chart during a press conference in New Delhi on June 6, 2024.
| Photo Credit: AP

The story so far: The Indian stock market witnessed extreme volatility right after the release of the exit poll results earlier this month and on June 4 when the results of the latest Lok Sabha election were declared. The benchmark indices, the Nifty and the Sensex, have since managed to recover the losses. The Congress alleged that Prime Minister Narendra Modi and Home Minister Amit Shah had manipulated the stock market through their statements to favour certain investors.

What is the controversy about?

The Nifty and the Sensex gained 3.2% and 3.4%, respectively, to hit all-time highs on June 3, the first day of trading after the exit poll results, which were released over the preceding weekend, suggested that the BJP would win a resounding majority in the election. The biggest gainers were stocks of companies that were seen to be close to the government, such as the Adani Group stocks, and stocks of public sector companies which were expected to benefit during Mr. Modi’s third term in power. Both the benchmark indices, however, slumped by almost 6% the very next day after the actual results failed to match exit poll predictions. The decline on June 4, which was the worst single-day fall in the stock market since March 2020 in the wake of the COVID-19 pandemic’s outbreak in India, wiped out investor wealth worth about ₹30 lakh crore. Prior to the exit poll results, the Prime Minister and the Home Minister had made statements encouraging investors to buy stocks before June 4 in order to benefit after the election results.

What is the Opposition’s allegation?

The Congress has alleged that Mr. Modi and Mr. Shah deliberately made comments exhorting retail investors to purchase stocks before the day of the election results and that this was an attempt to manipulate the market to favour certain foreign investors. To back this claim, the party’s data wing head Praveen Chakravarthy has drawn attention to the doubling of the value of stocks traded for cash in the market on May 31, the last trading day before the release of the exit poll results. The total value of stocks traded on May 31 was ₹2.3 lakh crore against ₹1.1 lakh crore the previous day. Mr. Chakravarthy has noted that more than half the buying that happened on May 31 came from foreign investors and further added that foreign investors were largely net sellers prior to May 31, when they suddenly turned net buyers of stocks. According to him, the PM’s statements encouraging investors to buy stocks before June 4 would have benefited these foreign investors who managed to load up on stocks before the exit poll results gave a sharp 3% bump to the stock market on Monday. The Opposition parties claim that these foreign investors had insider information about the exit poll results. They also add that the foreign investors managed to offload their stocks on Monday to retail investors who were not just late to the party but also suffered huge losses on Tuesday. The Opposition parties have called for a joint parliamentary committee (JPC) to probe the matter.

What do the market regulator’s rules say?

The Securities and Exchange Board of India’s Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market (FUTP) Regulations state that “planting false or misleading news which may induce sale or purchase of securities” is illegal. But there are exceptions. Comments on the overall market trend when broadcast to the wider public through mass media such as TV and newspapers, are not considered to be the same as information secretly leaked to certain investors to benefit from a coming market move. If not for such exceptions, it would be impossible for anyone to voice their opinion on the market. So, experts contend that unless, say, an investigation can prove that Mr. Modi acted in collusion with certain investors to boost the market prior to the exit poll results, there is probably nothing illegal about his statement urging investors to buy before June 4.

How has the Centre responded?

Union Minister Piyush Goyal responded to the Opposition’s accusations by arguing that foreign investors actually bought stocks at a high price and sold at a low price while Indian investors deftly used the market’s volatility to sell high and buy low. NSE data appeared to back this contention as it shows the umbrella category of ‘retail investors’ were net sellers of stocks on May 31 and June 3, when the market rose, while they were net buyers of stocks worth ₹21,179 crore on June 4, when the markets crashed. Foreign portfolio investors (FPIs), meanwhile, were net buyers on May 31 and June 3 when the markets went up and were net sellers on the day the markets crashed. Some market experts, however, point to the fact that the NSE’s ‘retail investors’ category includes not just small ordinary retail investors but also non-resident Indians (NRIs), HUFs, individual/proprietorship firms and partnership firm /Limited Liability Partnership (LLP) that encompass the investment vehicles used by ultra high net worth and high net worth individuals. These experts observe that shares worth a net amount of more than ₹21,000 crore were bought by ‘retail investors’ from FPIs and domestic mutual funds and that such heavy buying was unlikely to have been done by small ‘retail investors’ alone.

Further, while FPIs bought stocks worth ₹96,155 crore on May 31, the highest-ever in history, they also sold stocks worth ₹93,977 crore on the same day. In other words, despite the sudden rise in trading activity, foreign investors were not huge net buyers of stocks on May 31. This is, however, not to categorically say that there was no mischievous activity during the day. Data on net purchases or sales may not reflect how individual foreign investors with insider information may have benefited. Further, whether an investor group profited or lost money can also depend on exactly when during a trading session they managed to buy or exit a stock regardless of whether the indices closed higher or lower that day. Only a thorough investigation based on granular data can offer an answer to whether there was manipulation.

PLO chairman Yasser Arafat shakes hands with Israeli Prime Minister Yitzhak Rabin as U.S. President Bill Clinton stands between them after the signing of the Israel-PLO peace accord at the White House in Washington on September 13, 1993.
| Photo Credit: Reuters

The story so far: Hamas’s October 7, 2023 attack in Israel and the latter’s continuing war on Gaza have brought the Palestine question back to the fore of West Asia. As the war has destroyed much of Gaza and killed 36,000 of its people, the world has also seen more countries voicing strong support for a future Palestine state. Recently, three European countries, Spain, Ireland and Norway, recognised the Palestine state. Arab countries, including Saudi Arabia and Jordan, say there wouldn’t be lasting peace in the region unless the Palestine question is resolved. An internationally recognised solution to the crisis is what’s called the two-state solution.

What’s the two-state solution?

The short answer is simple: divide historical Palestine, the land between the Jordan River on the east and the Mediterranean Sea in the west, into an Arab state and a Jewish state. But the long answer is complicated. Israel, a Jewish state, was created in Palestine in 1948. But a Palestine state is not yet a reality. Palestinian territories have been under Israeli occupation since 1967. So, a two-state solution today means the creation of a legitimate, sovereign Palestine state, which enjoys the full rights like any other nation state under the UN Charter.

What are the origins?

The roots of the two-state solution go back to the 1930s when the British ruled over Palestine. In 1936, the British government appointed a commission headed by Lord William Robert Peel (known as the Peel Commission) to investigate the causes of Arab-Jewish clashes in Palestine. A year later, the commission proposed a partition of Palestine into a Jewish and an Arab state. At that time, Jews accounted for some 28% of Palestine’s population. According to the Peel Commission proposal, the West Bank, Gaza and Negev desert would make up the Arab state, while much of Palestine’s coast and the fertile Galilee region would be part of the Jewish state. Arabs rejected the proposal.

After the Second World War, the U.N. Special Commission on Palestine (UNSCOP) put forward another partition plan. It proposed that Palestine be divided into three territories — a Jewish state, an Arab state and an international territory (Jerusalem). Jews, who made up roughly 32% of Palestine’s population, were to have 56% of the Palestine land as per the UNSCOP plan. The partition plan was adopted in the U.N. General Assembly (Resolution 181). Arabs rejected the plan (India voted against it), while the Zionist leadership of Israeli settlers in Palestine accepted it. And on May 14, 1948, Zionists unilaterally declared the state of Israel. This triggered the first Arab-Israeli war. And by the time an armistice agreement was achieved in 1949, Israel had captured some 22% more territories than what the U.N. had proposed.

How did it get international legitimacy?

In the 1967 Six-Day War, Israel captured the West Bank and East Jerusalem from Jordan, the Gaza Strip and the Sinai Peninsula from Egypt and the Golan Heights from Syria (Israel continues to control all territories except the Sinai which it returned to Egypt after the 1978 Camp David Accords). Palestine nationalism emerged stronger in the 1960s, under the leadership of the Palestine Liberation Organization (PLO).

The PLO initially demanded the “liberation” of the whole of Palestine, but later recognised the two-state solution based on the 1967 border. Israel initially rejected any Palestinian claim to the land and continued to term the PLO as a “terrorist” organisation. But in the Camp David Accords, which followed the 1973 Yom Kippur War in which Egypt and Syria surprised Israel with an attack, it agreed to the Framework for Peace in the Middle East agreement. As part of the Framework, Israel agreed to establish an autonomous self-governing Palestinian authority in the West Bank and Gaza Strip and implement the U.N. Resolution 242, which has demanded Israel pull back from all the territories it captured in 1967. The Framework laid the foundation for the Oslo Accords, which, signed in 1993 and 1995, formalised the two-state solution. As part of the Oslo process, a Palestinian National Authority, a self-governing body, was formed in the West Bank and Gaza and the PLO was internationally recognised as a representative body of the Palestinians. The promise of Oslo was the creation of a sovereign Palestinian state which would live next to the Israeli state in peace. However, this promise has never been materialised.

What are the hurdles to achieving the two-state solution?

The first setback for the Oslo process was the assassination of Yitzhak Rabin, the Israeli Prime Minister who signed the accords, in November 1995 by a Jewish extremist. Rabin’s Labour party was defeated in the subsequent elections and the right-wing Likud, under Benjamin Netanyahu’s leadership, came to power. The rise of Hamas, the Islamist militant group that opposed the Oslo Accords saying the PLO made huge concessions to the Israelis, also contributed to the derailment of the peace process. After the collapse of the Oslo process in the 1990s, there were multiple diplomatic efforts to revive the two-state plan, but none of these made progress towards achieving the goal.

Multiple reasons could be identified for this failure. But there are specific structural factors that make the two-state solution unachievable, at least for now. One is the boundary. Israel doesn’t have a clearly demarcated border. It is essentially an expansionist state. In 1948, it captured more territories than it was promised by the UN. In 1967, it expanded further by taking the whole of historical Palestine under its control. From the 1970s, Israel has been building illegal Jewish settlements in Palestinian territories. While Palestinians say their future state should be based on the 1967 border, Israel is not willing to make any commitments.

Two, the status of settlers. Roughly 7,00,000 Jewish settlers are now living in the West Bank and East Jerusalem. If Israel is to withdraw to the 1967 border, they will have to pull back the settlers. The settlers are now a powerful political class in Israeli society and no Prime Minister can pull them back without facing political consequences. Three, the status of Jerusalem. Palestinians say East Jerusalem, which hosts Al Aqsa, Islam’s third holiest mosque, should be the capital of their future Palestinian state, while Israel says the whole of Jerusalem, which hosts the Western Wall, the holiest place in Judaism, is Israel’s “eternal capital”. Four, the right of refugees to return to their homes. Some 7,00,000 Palestinians were displaced from their homes in 1948 when the state of Israel was declared. According to international law, they have a right to return to their homes. Israel says it won’t allow the Palestinian refugees to return.

While these are the structural factors that make the two-state solution complicated, on the ground, Israel’s rightwing leadership shows no willingness to make any concessions. Israel wants to continue the status quo — the status quo of occupation. The Palestinians want to break that status quo.

The story so far: The International Monetary Fund (IMF) released the latest global financial stability report on Tuesday warning about the risks to the global financial system from persistent high inflation, rising lending in the unregulated credit market, and increasing cyber-attacks on financial institutions.

What is the IMF’s worry about inflation?

The IMF has flagged rising enthusiasm among investors that the fight against high inflation over the last few years has almost come to an end. Investors have been pushing up the prices of financial assets such as stocks in recent months in the hope that central banks will soon begin lowering interest rates as inflation comes under control. It should be noted that central banks generally try to lower interest rates by injecting more into the economy when inflation falls in an attempt to boost economic growth. Although central banks are yet to lower interest rates, investors may take falling inflation as a cue that central banks will soon flush the markets with more money to lower interest rates. So they go ahead and purchase financial assets in anticipation of greater demand for these assets when banks actually lower interest rates, thus pushing up the prices of these assets right now.

The IMF, however, believes that investor enthusiasm about slowing inflation and a possible cut in interest rates by central banks may be quite premature. It has noted that the fall in inflation has probably stalled in some major advanced and emerging economies where core inflation in the most recent three months has been higher than in the previous three months. The IMF has also warned that geopolitical risks such as the ongoing war in West Asia and Ukraine could affect aggregate supply and lead to higher prices. This, it believes, might stop central banks from lowering rates anytime soon.

If these risks persist, the IMF believes, investors who have been bidding up asset prices expecting fresh money from central banks to push up asset prices in the near future may change their mind. This could cause a sharp correction in the prices of various assets and leave many investors with significant losses.

What does it mean for India?

The IMF notes that fund flows into emerging markets have been strong till now due to optimism over central banks easing interest rates. In fact, in calendar year 2023, India was the second-largest recipient of foreign capital after the U.S., according to Elara Capital. But things could change quickly if western central banks signal that they could keep interest rates high for a long time. This could cause investors to pull money out of emerging markets like India and increase pressure on their currencies. The Indian rupee has already been depreciating and traded at a new low of 83.57 against the U.S. dollar last week despite likely intervention by the Reserve Bank of India (RBI). A severe outflow of capital if western central banks fail to lower interest rates could cause further depreciation of the rupee and have effects on the country’s financial system. In such a scenario, the RBI is likely to defend the rupee by curbing liquidity to raise interest rates, which could cause the economy to slow down.

What about the private credit market?

The IMF in its report also noted that the growing unregulated private credit market, in which non-bank financial institutions lend to corporate borrowers, is a growing concern as troubles in the market might affect the broader financial system in the future. It estimates that the private credit market globally grew to $2.1 trillion last year. The non-bank financial institutions lending to corporate borrowers include institutional investors such as pension funds and insurance companies. Institutional investors are investing in the private credit market because they offer higher returns than normal investments. Meanwhile, the borrowers benefit as they cannot get convenient long-term funds through other venues.

The IMF, however, is worried that the borrowers in the private credit market may not be financially sound and noted that many of them do not have current earnings that exceed even their interest costs. It also argues that since these loans rarely trade in an open, liquid market like many other securities do, it might be hard for investors to really gauge the risk involved in these loans. Thus private credit assets have significantly smaller markdowns in their mark-to-market value during times of stress, the IMF notes. In a highly liquid market where securities are traded frequently, the real risk behind a loan is priced in more immediately and also more accurately by investors. Nevertheless, it may be the case that institutional investors are fully willing to bear the risk in return for higher returns.

India has also seen the growth of a small private credit market with the rise of Alternative Investment Funds (AIFs). These funds lend money to high-risk borrowers who are not catered to by the traditional banking system and non-bank financial companies. They have also invested in distressed assets that have come up for sale under the Insolvency and Bankruptcy Code regime. The Securities and Exchange Board of India (SEBI) notes that investments made through these funds, although still small, have more than tripled from ₹1.1 lakh crore in 2018-19 to ₹3.4 lakh crore in 2022-23. As financial regulators, both the RBI and SEBI have been noticing this trend and tried to increase scrutiny over these funds.

Solar panels and solar fans are displayed among other electronics for sale at a shop inside a wholesale electronics market in Kolkata on March 19, 2024.
| Photo Credit: Reuters

The story so far: To incentivise India’s solar module manufacturing industry, the Ministry of New and Renewable Energy (MNRE) has brought into effect from April 1 an executive order, The Approved Models and Manufacturers of Solar Photovoltaic Modules (Requirements for Compulsory Registration) Order, 2019.

What is the context of the executive order?

This order was first issued by the MNRE in 2019 and requires makers of solar modules to voluntarily submit to an inspection of their manufacturing facilities by the National Institute of Solar Energy, a Ministry-affiliated body. Being on the list as an ‘approved’ manufacturing facility certifies a company as a legitimate manufacturer of solar panels and not a mere importer or assembler. This became necessary because India’s solar industry, its claim of indigenousness notwithstanding, is heavily reliant on imports of cheaper and comparable-quality solar modules from China.

Editorial | Solar surge: Moving away from imported solar panels

Modules are multiple solar panels joined together. Solar panels are an assembly of solar cells. Despite being among the top manufacturers in the world and a commitment to scale solar installation four-fold by 2030, local production of these cells and modules is much below demand. India also has limited capacity to make the raw material of a cell — ingots, wafers — and is dependent on imported cells.

Why is India reliant on imports?

The creation of such a list was also aimed at restricting imports from China, which controls nearly 80% of the global supply, with the downturn in diplomatic relations between the countries also being a factor. India has ambitious plans of sourcing about 500 GW, nearly half its requirement of electricity, from non-fossil fuel sources by 2030. This would mean at least 280 GW from solar power by that year or at least 40 GW of solar capacity being annually added until 2030. In the last five years, this has barely crossed 13 GW though the government has claimed that COVID-19 affected this trajectory. The difficulty is that meeting the targets require many more solar panels and component cells than India’s domestic industry can supply.

If the list is voluntary why pay to be on it?

The major advantage of being on the list is eligibility to compete for tenders issued by the government for its flagship solar energy programmes. This includes among others the recently announced PM Surya Ghar Muft Bijli Yojana. The scheme envisages subsidising rooftop solar installations for nearly one crore households in the country involving an estimated subsidy of ₹75,000 crore. However, only domestic manufacturers, certified as part of the Approved Models and Manufacturers (AMM) list, would be eligible. There is also another scheme called the PM KUSUM (Pradhan Mantri Kisan Urja Suraksha evam Utthaan Mahabhiyaan) that aims to provide solar pumpsets and rural electrification. For manufacturers to be eligible to provide components under this scheme, they have to be certified as genuine local manufacturers. The government also has a ₹24,000 crore scheme, called the Production Linked Incentive Scheme, that is targetted at incentivising domestic manufacture of solar panels and their components. Eligibility for this scheme too requires one to be a bona fide local manufacturer. So far, 14 major companies have become eligible for incentives to manufacture solar modules worth 48 GW. However, these restrictions apply only to fresh projects and plants and facilities commissioned before March 2024 can rely on imported modules.

Is India’s manufacturing capacity adequate?

Last year was a fortunate year for Indians in the solar business. China which supplies over 80% of solar components globally saw a curb in orders from the U.S. on the grounds that the former relied on “forced labour” by Uiyghur Muslims in the Xinjiang province. Europe too scaled back imports from China and a beneficiary of this was India which exported nearly $1 billion worth of modules in six months of 2023-24. However, reports suggest that the U.S. might roll back duties on China and this could again mean uncertainty for the future of Indian exports. It is estimated that nearly half of India’s solar modules are imported from China and the demand-supply mismatch is expected to persist. The government, however, has claimed that beginning this year, there will be a significant rise in manufacturing capacity. While the list of certified manufacturers on the AMM list has grown to 82 according to the MNRE, there is yet no list of such manufacturers of solar cells, implying that India is still far away from achieving a comfortable degree of self-reliance.

Indian and Sri Lankan pilgrims leave Katchatheevu in March 2023 after attending the St. Anthony’s Church festival.
| Photo Credit: The Hindu

The story so far: On March 31, Prime Minister Narendra Modi posted on social media platform ‘X’ that he blamed the Congress for “callously” giving away Katchatheevu island to Sri Lanka. He cited a media report on documents received in response to a Right to Information Act application from K. Annamalai, the Bharatiya Janata Party’s (BJP) Tamil Nadu president. Soon after, External Affairs Minister S. Jaishankar held a media conference, in which he sought to elaborate on Mr. Modi’s allegation. Calling for a “solution”, he said the bilateral agreements signed by India and Sri Lanka in 1974 and 1976, when the Congress and the Dravida Munnetra Kazhagam (DMK) were in power respectively at the Centre and in Tamil Nadu, displayed indifference about Katchatheevu island, and compromised Indian fishermen’s rights in the Palk Strait separating India and Sri Lanka.

Where is Katchatheevu?

Katchatheevu is an uninhabited island spanning some 285 acres in the Palk Strait that separates Tamil Nadu and northern Sri Lanka. More precisely, it is located 14.5 km south of Delft Island and about 16 km to the northeast of Rameswaram. It is barren, has no drinking water or infrastructure, except a sole Catholic structure dedicated to St. Anthony.

What was the dispute?

The dispute was over who owns Katchatheevu. Negotiations began in 1921, between the British colonial governments of Madras and Ceylon, with both sides claiming territorial ownership. The matter was settled some five decades later, after the Governments of India and Sri Lanka, under Prime Ministers Indira Gandhi and Sirimavo Bandaranaike, signed two bilateral agreements in 1974 and 1976. The governments agreed that Katchatheevu falls within Sri Lanka’s territory, and on a maritime boundary in the Gulf of Mannar and Bay of Bengal to define the two countries’ exclusive economic zones. With the exclusive economic zones, India and Sri Lanka agreed to exercise sovereign rights over the living and non-living resources of their respective zone. The understanding was that fishing vessels and fishermen of India and Sri Lanka shall not fish in each other’s waters, territorial sea and the exclusive zone.

However, despite the historic dispute over its territorial definition, fishermen from Tamil Nadu visit Katchatheevu every March, along with their Tamil-speaking counterparts of northern Sri Lanka, for the annual St. Anthony’s festival. The Indian fishermen do not require a passport to visit the island in Sri Lankan territorial waters for this purpose, because the 1974 agreement expressly permitted them to access the island for rest, drying of nets, and the festival, while prohibiting any fishing activity.

What did India get?

Commentary and analysis from the time, including in The Hindu, shows New Delhi was seen as gaining some diplomatic mileage with its neighbour, which was tilting towards China then. A few years after the liberation of Bangladesh, and alongside the difficult question of citizenship for Indian-origin Tamils who were rendered stateless in Sri Lanka, New Delhi deemed strong and close ties with Sri Lanka important. Further, New Delhi got sovereign rights over Wadge Bank, located near Kanniyakumari, and its rich marine resources. Earlier this year, the Union Ministry of Petroleum and Natural Gas, Directorate of Hydro-Carbon put out Notice Inviting Offers (NIO) for the exploration and development of oil and gas blocks in India, under the Hydrocarbon Exploration and Licensing Policy (HELP). The move drew flak from residents of Kanniyakumari and environmentalists who raised concerns over such activity impacting the marine ecosystem around Wadge Bank.

Are fishermen arrests related to the island?

No, they are not. Indian fishermen from Tamil Nadu have been facing arrests by the Sri Lankan Navy for many years now, for fishing illegally in Sri Lanka’s territorial waters. Invariably, the arrests are made well past Katchatheevu, very close to Sri Lanka’s northern shores. Northern Sri Lankan fishermen, also Tamil speaking, have been agitating since the end of the island nation’s civil war in 2009, to assert their fishing rights. The Indian fishing boats are a major impediment to their post-war recovery.

In particular, they resist the use of the bottom-trawling fishing method used by their Indian counterparts, where trawl nets go down to the seabed, and scoop out all marine organisms, including small fishes and eggs. Eager to boost its marine exports, India began encouraging mechanised trawler fishing decades ago, when the Norwegian government invested millions of dollars into modernising India’s fishing fleet from the 1950s and up to the early 1970s. Owing to the practice, marine resources along Tamil Nadu’s coast have depleted, pushing Indian fishermen towards the Sri Lankan coast, rich in marine biodiversity, especially shrimps. Northern Sri Lankan fishermen are opposing the use of the fishing method that Indian fishermen stubbornly hold on to, despite the two governments in 2016 agreeing to expedite the “transition towards ending the practice of bottom trawling at the earliest”. The fishermen’s conflict is a contest between Tamil-speaking fishermen in India and Sri Lanka, with those from Tamil Nadu habitually fishing illegally in Sri Lankan waters, using bottom trawlers that are banned in Sri Lanka. Although many politicians in India often conflate the two issues, Katchatheevu is not the site of this struggle, and its “retrieval” cannot be a solution to it.

What has been the response?

Opposition parties led by the Congress have slammed the remarks, citing the government’s own position in 2015 that the previous agreements did not “involve either acquiring or ceding of territory belonging to India”. Tamil Nadu Chief Minister M.K. Stalin asked if PM Modi raised the issue of the retrieval of the Katchatheevu island with Sri Lanka once during his 10-year rule. Senior diplomats, who have led Indian missions in Sri Lanka, said questioning past agreements could damage India’s credibility and impair relations with our neighbour. Former National Security Adviser Shiv Shankar Menon told The Hindu that reopening the 50-year-old-agreement could prove to be a “self-goal.”

Editorial | No man’s land: Playing politics over Katchatheevu 

In what some see as a muted response from the Sri Lankan government, the country’s Foreign Minister Ali Sabry has said there is no need to resume talks on a matter resolved 50 years ago. Sri Lanka’s Fisheries Minister Douglas Devananda has accused India of acting in self-interest “to ensure Sri Lankan fishermen do not have access” around Katchatheevu. Fishermen on both sides have voiced concern over the remarks, while reminding the two governments that much needs to be done to resolve the actual fisheries conflict that is threatening both the region’s marine ecosystem and livelihoods of fisher folk who depend on it.

Job seekers at a job fair in Bengaluru. The trend of contractual appointments and clamour for consultancies are also blamed for the dip in formal jobs.
| Photo Credit: AFP

The story so far: The India Employment Report 2024, prepared jointly by the Human Development and the International Labour Organization, and released on March 26, revolves around “youth employment, education and skills.” It has analysed trends and patterns of the Indian labour market for two decades, including the COVID-19 years, and listed the “emerging characteristics of the employment challenges now confronting the economy as well as the impact of growth on employment.”

What are the key findings?

The report’s authors note that the proportion of India’s working-age population (aged 15–59) increased from 61% in 2011 to 64% in 2021 and is projected to reach 65% in 2036. About 7-8 million young people are added each year to the labour force. Though the proportion of youth getting an education increased from 18% in 2000 to 35% in 2022, the percentage of youth involved in economic activities decreased from 52% to 37% during the same period. The authors warn that unemployment in the country is “predominantly a problem among youth”, especially those with a secondary level of education or higher, and that it has intensified over time. “In 2022, the share of unemployed youth in the total unemployed population was 82.9%,” they noted, adding that the share of educated youth among all unemployed people also increased, from 54.2% in 2000 to 65.7% in 2022. Also, among the educated (secondary level or higher) unemployed youth, women accounted for a larger share (76.7%) than men (62.2%). 

Is the crisis the result of a lack of jobs?

Santosh Mehrotra, who taught labour economics at Jawaharlal Nehru University and whose studies have been cited in several chapters in the report, told The Hindu that it’s a question of both lack of opportunities and unemployability of educated youth due to poor quality of education. He urged the government to ensure that the development of skills was separated from formal education. The ILO and IHD said the share of technically qualified youth was low in India: 15.62% youth had vocational training in 2022, but out of them only 4.09% had formal vocational training.

Editorial | Jobs outlook bleak: On the ‘The India Employment Report 2024’

According to Mr. Mehrotra, the fact that employment in the agriculture sector has increased after 2019 is because of the lack of quality education among the youth, making it difficult for them to get jobs in other sectors.

The report’s authors pointed out that most jobs in 2023 (90.4%) were in the informal sector; and that around half the jobs in the formal sector (45.2%) were also of an informal nature. Mr. Mehrotra stressed the importance of creating more jobs in the formal sector, pointing out that the unemployment rate among youth had tripled between 2012 and 2018.

What is the quality of employment?

The ILO and IHD stated that the jobs remained low-productive and low-earning. Real wages and earnings showed a decline or had stagnated. A large proportion of regular workers (40.8%) and casual workers (51.9%) did not receive the average daily minimum wage prescribed for unskilled workers. The government-prescribed rate is ₹480 per day.

Central trade unions and the Samyukt Kisan Morcha are concerned about the report’s findings. According to senior trade union leader Amarjeet Kaur, the ILO report flags the “wage depression” prevalent in the country, especially when food inflation is not under control. She adds that formal employment is merely 9% of total employment and that most of the workforce is kept out of any social security net. “This itself adds to unemployment and underemployment as workers without formal employment may not be able to build a base of education and skill enhancement for the next generation,” she observes. The report’s authors said as individuals attain higher levels of education, they are more likely to have access to more secure and formal employment options, leading to higher average returns. Youth residing in the southern, western and north-eastern regions had greater probabilities of being in formal employment, they noted, also flagging the larger presence of socially marginalised youth in informal jobs.

Why are jobs scarce in the formal sector?

Trade unions contend that thousands of posts have not been filled for years and the policy of letting one-third of the vacancies lapse after retirements have resulted in the decrease of formal employment. The trend of contractual appointments and clamour for consultancies are also blamed for the dip in formal jobs. 

What about the gender gap? 

There is a significant gender gap in the labour market, with low rates of female labour force participation. The gender gap in the LFPR has remained almost consistent over the past two decades, the report’s authors observed. In 2022, the LFPR of young men (at 61.2%) was almost three times higher than that of young women (at 21.7%), and the gender gap was similar in both rural and urban areas. The report’s authors have noted that there is a large proportion of young persons, particularly women, who are not in education, employment or training. Between 2012 and 2019, there was an alarming increase in unemployment because of the decrease in women participation in the workforce, a trend which has been slightly reversed post 2019. “Young women are more likely to engage in agriculture than young men,” they said. The ILO and IHD recommended that measures such as crafting policies to boost women’s participation in the labour market including larger provision for institutional care facilities, adaptable work arrangements, improved public transport, improved amenities and enhanced workplace safety must be taken in mission mode to address this gender gap in employment.

What has the report recommended? 

India was expected to have a sustained economic growth of 5-6% in the next 15 years or so, the report’s authors noted. “Rapid technological changes and high growth have increased the gap between skill supply and demand,” they said, urging policymakers to take adequate steps to ensure rapid integration of youth into the labour market through well-targeted supply and demand measures.

The report’s authors have recommended “five missions” to address the challenges: Make production and growth more employment-intensive; improve the quality of jobs; overcome labour market inequalities; make systems for skills training and active labour market policies more effective; bridge the deficits in knowledge on labour market patterns and youth employment. They have recommended measures such as integrating employment creation with macro and other economic policies to boost productive non-farm employment. They also said micro, small and medium-sized enterprises must be supported and decentralised. They have urged the government to take steps to increase agriculture productivity, create more non-farm jobs and promote entrepreneurship.

Calling for a focus on policies that boost women’s participation in the labour force, they also sought a minimum quality of employment and basic rights of workers across all sectors.

Humanitarian aid parcels attached to parachutes are airdropped from a military aircraft over the Gaza Strip on March 21, 2024.
| Photo Credit: AFP

The story so far: As Israel’s war on Gaza is reaching its sixth month, the Palestinian enclave has become the world’s “largest open-air graveyard”, as the EU’s foreign policy chief Josep Borrell put it. The U.N. has warned that a famine in the tiny strip of land with 2.3 million people is “imminent”. Despite growing international calls for a ceasefire, the government of Prime Minister Benjamin Netanyahu vows that it would continue its military operation until “Hamas is dismantled”.

What is the situation in Gaza?

The war, which started after Hamas’s October 7, 2023 attacks in Israel in which at least 1,200 people were killed, has already destroyed much of Gaza and pushed most of the enclave’s population to the southern town of Rafah. According to Gaza’s health authorities, the over five months of Israeli attacks has killed at least 32,000 Palestinians, a vast majority of them women and children. More than 74,000 people have been injured. Gaza lacks enough hospitals, medical professionals, medicines, clean water and other healthcare facilities to treat the wounded. “We see patients trying to recover from life-saving surgeries and losses of limbs, or sick with cancer or diabetes, mothers who have just given birth, or newborn babies, all suffering from hunger and the diseases that stalk it,” the World Health Organization (WHO) said.

Most of the internally displaced people, roughly two million, are living in make-shift camps in the south. According to the UN, at the schools that shelter refugees, each toilet and shower are shared by hundreds of people. Diseases associated with poor sanitation such as hepatitis A, diarrhoea and other infections are rampant. As per the latest report from the Integrated Food Security Phase Classification (IPC), the situation in Gaza is “catastrophic”. Before the war, there was enough food in Gaza to feed its population and malnutrition was rare. Now, “over a million people are expected to face catastrophic hunger unless significantly more food is allowed to enter Gaza,” WHO Director- General Tedros Adhanom Ghebreyesus said.

Why is there a severe hunger crisis?

The IPC report states that Gaza is now experiencing the most severe hunger crisis anywhere in the world. If before October 7, 0.8% of children under five were acutely malnourished, that figure went up to 12.4% to 16.5% in February. Gaza needs an immediate increase in supplies of food, water and other essential supplies, it said. Children are dying from the combined effects of malnutrition and disease. And the situation has gradually worsened over the past five months. If the percentage of Gaza’s population experiencing famine was roughly 30% in February, it went up to 50% by mid-March. In northern Gaza alone, at least 27 Palestinians, mostly children, have died due to malnutrition and dehydration, according to authorities. The north, where around 3,00,000 people are still living, has been mostly cut off from supplies as Israel has sealed off the border (except one checkpoint that was opened). Most of the aid that enters Gaza passes through two checkpoints in the south.

Experts usually look at three criteria to determine a famine — extreme lack of access to food, high levels of acute malnutrition and child deaths. Northern Gaza is already facing extreme lack of access to food and malnutrition levels and child deaths are steadily on the rise, which prompted the U.N. and several global powers to issue urgent calls for a ceasefire and more supplies for Gaza’s population.

What led Gaza to the brink?

Before October 7, around 600 trucks entered Gaza daily, of which roughly 150 carried food. Since then, Gaza’s economy has been destroyed by the war. According to the U.N.’s Food and Agriculture Organization, half of croplands in the north, the breadbasket of the Strip, had been damaged in the war. Israel’s incessant bombing has also damaged Gaza city’s port, which practically destroyed the fishing sector, a major source of income for Gazans. Government institutions are not working and construction and other activities came to a grinding halt. This pushed almost all of the population to be dependent on aid, which means the demand for supplies went up many times. But the average number of trucks entering Gaza has come down from 600 in October to 200 today, according to the U.N., which accentuated the crisis that was already unfolding because of the destruction of Gaza’s economy. In February-end, Israel forces opened fire at a crowd that had gathered near an aid convoy, triggering a stampede and killing over 100 Palestinians.

To help alleviate the crisis, the U.S. and some European and Arab countries ramped up airdrops on Gaza. In one incident, a pallet crashed on to people waiting for food as its parachute failed to open, crushing at least five to death. As the crisis worsened with Israel’s refusal to let more aid into the enclave, World Central Kitchen, a charity, sent supplies via the sea. The U.S. is planning to build a pier on the coast of Gaza to send aid, but it will take months for this plan to be operational. The U.N. said last week that Israel’s refusal to let more aid in could be tantamount to using starvation as a “weapon of war”. “The situation of hunger, starvation and famine is a result of Israel’s extensive restrictions on the entry and distribution of humanitarian aid and commercial goods,” said U.N. Human Rights chief Volker Turk.

Is there a solution in the offing?

Various U.N. agencies have made it clear that to quickly improve the situation, the war should be brought to an end. Gaza is going through its worst humanitarian tragedy. Its economy has been destroyed; population battered; aid supplies have fallen; and even the limited quantities of aid that reach the enclave are not being distributed properly because of hurdles that were created by ongoing fighting. The U.N., which also lost over 100 employees, is understaffed and U.N. workers are also starving.

Israel allies in the West have acknowledged the seriousness of the situation. Antony Blinken, the U.S. Secretary of State, said last week that all of Gaza’s population “are experiencing severe levels of acute food insecurity”. But their solution to the crisis is to find alternative ways to ramp up supplies without forcing Israel to open the border, which is unlikely to alleviate the crisis. What Gaza needs is an immediate ceasefire. But after over five months of fighting, Israel has barely achieved its declared objectives such as freeing hostages or dismantling Hamas. Negotiations are ongoing under the mediation of Qatar, Egypt and the U.S., but Israel and Hamas have not reached an agreement. Israel appears to be ready for a short-term pause in fighting in return for the release of hostages, but Hamas seeks a lasting ceasefire and has also demanded the release of some high-profile Palestinian prisoners, including Marwan Barghouti, the Fatah leader who has been in Israeli jails for over two decades. As both sides reach no common ground, Israel, which continues to get weapons from the U.S., continues the war, for now.

The story so far: On February 14, the chairman of the Intelligence Committee of the U.S. House of Representatives, Mike Turner, called the media’s attention to “information concerning a serious national security threat” and urged President Joe Biden to declassify it so more experts could be recruited to mitigate the danger it allegedly posed. A flurry of news reports followed, quoting various sources and referring to some kind of Russian space-based weapon.

What do we know about the ‘weapon’?

On February 15, a day after Mr. Turner’s statement, U.S. National Security Council spokesperson John Kirby confirmed the claims referred to a space-based “anti-satellite weapon” of Russian provenance. Mr. Kirby also said Russia hadn’t yet deployed the ‘capability’ in question — meaning the object wasn’t yet in orbit — and that it would violate the Outer Space Treaty (OST), a multilateral agreement that prohibits the placement of weapons of mass destruction in earth’s orbit.

By this time, some news reports had also quoted anonymous sources saying that the Russian capability was either nuclear in nature or that the satellite bearing the capability would be nuclear-powered. Mr. Kirby’s statements didn’t directly address these concerns. However, since he said the capability would violate the OST, the nuclear concern isn’t out of the question yet. (The OST is against nuclear weapons in space, not nuclear-powered satellites.)

On February 16, President Biden confirmed Mr. Turner had referred “to a new Russian nuclear anti-satellite capability” and added there were no indications what Russia had decided to do with it. However, the White House has refused to declassify information about it.

What are anti-satellite weapons?

Anti-satellite (ASAT) weapons are designed to debilitate and/or destroy satellites that are already in orbit and operational. ASAT weapons violate the OST through the latter’s Article VII, which holds parties to the treaty liable for damaging satellites belonging to other parties, and Article IX, which asks parties to refrain from the “harmful contamination” of space.

Russia, in the form of the erstwhile Soviet Union, has had ASAT capabilities since at least 1968. While the Cold War motivated ASAT weapon tests on either side of the Atlantic, the respective programmes refused to dwindle once relations thawed. Most of these weapons are kinetic, meaning they destroy satellites in orbit by rocketing into them or detonating an explosive near them, and blowing them to pieces. Because of the low gravity and lack of an atmosphere, the resulting debris can stay in orbit for a long time depending on their size. This result violates Article IX of the OST.

Are there space-based nuclear weapons?

In a high-altitude test in 1962 called Starfish Prime, the U.S. detonated a thermonuclear bomb 400 km above ground. It remains the largest nuclear test conducted in space.

A Thor rocket launched the warhead to a point west of Hawaii, where its detonation had a yield of 1.4 megatonnes. More importantly, it set off an electromagnetic pulse (EMP) much larger than physicists had expected, damaging a few hundred street-lights in Hawaii, 1,500 km away. The charged particles and radiation emitted by the blast became ensnared in and accelerated by the earth’s magnetic field, distorting the ionosphere and resulting in bright aurorae.

Starfish Prime was part of the U.S.’s high-altitude nuclear tests in 1962. The Soviet Union also conducted such tests around then with similar effects. For example, Test 184 on October 22, 1962, detonated a 300-kilotonne warhead 290 km above ground. The resulting EMP induced a very high current in more than 500 km of electric cables and eventually triggered a fire that burned down a power plant.

How will a nuclear weapon affect satellites?

The principal threats to other satellites from a space-based nuclear weapon are the EMP and the release of charged particles.

Starfish Prime itself temporarily knocked out roughly a third of all satellites in orbit at the time – and illustrates a failing relevant to the current context. An EMP from a nuclear weapon in space will affect all satellites around the point of detonation, including Russian satellites, those of its strategic allies (such as China), and of countries not involved in a particular conflict. It would also grossly violate the OST. Depending on the strength, location, and directedness of the explosion, it could also blow a large number of satellites to pieces, more than what a ‘conventional’ kinetic ASAT weapon might.

Scott Tilley, an amateur radio operator with a name for tracking down ‘lost’ satellites, wrote on X that “the damage is not immediate to most [satellites] but rather caused by new and intensified radiation belts”. (However, researchers have been working on tamping down disturbances caused by space-based nuclear explosions in radiation belts around the earth through a process called radiation-belt remediation).

Eventually, the result is more dud satellites and debris, raising concerns of the Kessler effect: when there is a certain level of debris in low-earth orbit, collisions among themselves as well as with other satellites could produce more debris, leading to a “collisional cascade” that rapidly increases the amount of debris in orbit.

There is one more possibility. In 1987, the Soviet Union launched a rocket bearing a high-power laser that could target and destroy other satellites. The launch failed. But Marco Langbroek, a lecturer at Delft Technical University, the Netherlands, raised the possibility of the Russians launching a similar laser powered by a nuclear energy source.

What do the U.S.’s claims imply?

Modern civilisation depends heavily on satellites, which means they can be assets or vulnerabilities. But the inability to target a nuclear weapon in space — at certain satellites over others — mitigates its usefulness. This is why some security researchers have suggested that if the Russian capability is nuclear, it will be a weapon of last resort. Some others have said the ‘nuclear’ component is likely to be limited to the power source. “That Russia is developing a system powered by a nuclear source… that has electronic warfare capabilities once in orbit is more likely than the theory that Russia is developing a weapon that carries a nuclear explosive warhead,” Daryl Kimball, executive director of the Arms Control Association advocacy group, told Reuters.

This said, Mr. Turner’s comment, which alerted the world to the possibility, provoked sharp reactions in the U.S. His peers in the Republican Party accused him of attempting to drum up support for Ukraine and that he wished to have an “unreformed” version of the Foreign Intelligence Surveillance Act passed, CNN reported. After the U.S. had warned its allies in Europe of the potential threat, the Kremlin called the claim a “malicious fabrication” and a ruse to allocate more funds for the war effort in Ukraine.