GS Analyst: Daily Editorial In Brief

Context:

China's assertive foreign policy has led to the formation of several minilateral groupings in recent years, including the resurgence of the Quad and the establishment of AUKUS, driven by concerns over Beijing's aggressive actions.

US-Japan-Philippines Trilateral Partnership:

• Trilateral partnership: The US, Japan, and the Philippines are currently engaged in a trilateral partnership, with the inaugural Trilateral Leaders' Summit that aims to enhance cooperation and peace and security in the Indo-Pacific region and beyond.
• Addressing concerns: While China opposes the formation of exclusive groupings, citing concerns about regional peace and stability, the trilateral partnership seeks to address shared concerns regarding China's assertiveness and coercive policies.
• Convergence of interests: The significance of the US-Japan-Philippines trilateral lies in Japan's defense alliance with the US and the Philippines' status as a major non-NATO ally, reflecting a convergence of interests among the three countries in response to the China threat.

Philippines' Response and Strategic Shifts:

• Reduce reliance on ASEAN: Despite implicit discussions about China, the trilateral summit aims to enhance cooperation without targeting any specific country. However, Philippines' strategic shift towards extra-regional powers reflects its efforts to reduce reliance on fellow ASEAN members amid strained relations with China.
• Strong backing: The potential involvement of the US and Japan in any conflict between China and Philippines underscores the significance of the trilateral partnership, offering substantial backing for the Philippines against China's assertiveness in the South China Sea.
• Effectiveness of Minilateral Groupings: While minilateral groupings like the US-Japan-Philippines trilateral and the Quad aim to address security challenges posed by China, questions are being raised about their efficacy. Despite their proliferation, few have translated into concrete actions, casting doubt on their ability to effectively tackle complex security issues.

Context:

The recent decision by the cabinet on the 'National One Health Mission' marks a significant step in addressing the interdependence between humans, animals, and the environment, especially in light of the emergence of pandemics like COVID-19.

Goals of the National One Health Mission:

• Integrated disease surveillance: The mission aims to develop strategies for integrated disease surveillance, joint outbreak response, coordinated research and development (R&D), and seamless information sharing to control routine and pandemic diseases affecting humans, animals, and the environment.
• Addressing diseases affecting not only humans but also livestock and wildlife (foot and mouth disease, lumpy skin disease), is important, which can impact productivity, trade, and conservation efforts.
• Pandemic preparedness is emphasized, highlighting the need for strong R&D to develop tools like vaccines, therapeutics, and diagnostics, with participation from all sectors.

Creation of a Network of Laboratories:

• National network: Under the mission, a national network of high-risk pathogen laboratories (Biosafety level 3 and 4) has been established to facilitate better disease outbreak response across human, animal, and environmental sectors.
• Resource optimization and collaboration: This initiative enables resource optimization and collaboration between different departments, enhancing the response to diseases like Nipah that involve multiple species.
• 'One Health' is recognized as a global topic, endorsed by organizations like the G-20 during India's presidency, emphasizing collaboration in areas like surveillance capacity building and setting up international networks of 'One Health' institutes.

Context:

The Reserve Bank of India's (RBI) recent policy reiteration regarding participation criteria for exchange traded currency futures and options contracts has disrupted the functioning of this segment, leading to a significant decline in daily turnover and outstanding contracts.

Impact on Currency Futures and Options Segment:

• Impacted daily turnover: Since the RBI's circular, daily turnover in currency futures and options on the NSE has plummeted to less than one-tenth of the daily average, prompting domestic brokers and foreign portfolio investors to unwind existing contracts.
• Threatened liquidity: The absence of participation from proprietary traders and foreign portfolio investors, who constitute over 65% of the currency derivatives volume, threatens liquidity in the segment, potentially exacerbating volatility in rupee movement and affecting hedging options for market participants.
• Increased volatility: Foreign portfolio investors, unable to trade in currency contracts on domestic exchanges, may shift to the rupee NDF market in overseas financial hubs, potentially leading to increased volatility.

Regulatory Framework and Concerns:

• Exchange traded currency derivatives, governed by FEMA rules, allow small businesses and individuals to hedge their foreign exchange exposure with smaller contract sizes. They have witnessed substantial growth, with volumes increasing nearly six-fold between FY18 and FY24.
• A circular issued in June 2014 allowed trading in currency derivative contracts on exchanges without requiring documentary evidence, but the RBI's recent policy enforcement aims to curb speculation by ensuring adherence to hedging norms.
• Potential Solutions: Collaborative efforts between the RBI and the government to remove foreign currency traded derivatives from FEMA's purview could offer a solution to address regulatory concerns while ensuring a conducive environment for genuine hedging activities.