UPSC Mains Practice: Bond Yields, Monetary Policy, and CCUS Tech for 2026 Exam
UPSC Mains Practice: Bond Yields, Monetary Policy, CCUS Tech

UPSC Essentials: Mains Answer Practice for GS Paper 3 – Week 141

Are you gearing up for the Civil Services Exam 2026? This week's UPSC Mains answer writing practice focuses on two critical topics from General Studies Paper 3: the influence of government bond yields on monetary policy transmission and the role of carbon capture, utilisation, and storage (CCUS) technology in India's decarbonisation efforts. Designed to enhance your preparation, this session provides essential points, analysis, and discussion prompts to refine your answer-writing skills.

Question 1: Discuss How Changes in Government Bond Yields Influence the Transmission of Monetary Policy in India

Relevance: Recent developments, including large government borrowing programmes and volatile government security yields following the Union Budget, have sparked concerns about impaired monetary policy transmission despite stable repo rates. This topic intersects with key governance themes such as RBI autonomy, fiscal-monetary coordination, and Centre-State financial relations, making it vital for GS Paper 2 as well.

Introduction: The bond market exhibited significant volatility as the benchmark 10-year government bond yield surged to its highest level in over a year, a direct response to Finance Minister Nirmala Sitharaman's presentation of the Union Budget, which announced a record gross borrowing plan for 2026–27. Rising yields indicate falling bond prices, reflecting heightened selling pressure from investors.

Body:

  • Higher bond yields signal increased funding costs across the financial system. As yields climb, the government must offer higher returns to attract investors, thereby elevating its borrowing expenses. This upward pressure on interest rates permeates the banking sector, affecting loans, deposits, and overall liquidity conditions.
  • Analysts suggest that rising yields reflect expectations of persistent inflation and the potential for interest rates to remain elevated or increase further. Persistently high yields can intensify upward pressure on interest rates and may encourage a shift in savings from bank fixed deposits to sovereign bonds, as the yield gap widens in favour of government securities.
  • Rising yields typically indicate that investors anticipate higher interest rates ahead, leading them to sell existing bonds. Since bond prices move inversely to yields, higher rates reduce the market value of current bonds, resulting in potential capital losses for investors who exit before maturity.
  • As bond prices decline, the net asset values (NAVs) of debt mutual funds, particularly those with substantial exposure to government securities, tend to fall. Corporate bonds, priced at a spread over government securities, also face pressure as benchmark yields rise.
  • Bond yields represent the annual return an investor expects to earn by holding a security until maturity, considering both interest payments and principal repayment relative to the purchase price. Because bond prices and yields move in opposite directions, a rise in yields automatically translates to lower bond prices in the secondary market.

Conclusion: Higher bond yields can have spillover effects on equity markets, as rising interest rates increase financing costs for companies and make fixed-income investments relatively more attractive, potentially dampening equity valuations.

Source: Benchmark 10-year bond yields rise on record borrowing plan announced in Budget.

Points to Ponder

  1. Examine the relationship between bond yield and bond price.
  2. Review the mechanisms of RBI Monetary Policy.
  3. Consider previous year questions, such as: "What are the causes of persistent high food inflation in India? Comment on the effectiveness of the monetary policy of the RBI to control this type of inflation." (2024)

Question 2: Discuss the Role of Carbon Capture, Utilisation, and Storage (CCUS) Technology in India’s Decarbonisation Efforts. Highlight the Barriers to Large-Scale Deployment of Carbon Capture Technology in India

Relevance: CCUS technology is integral to India's international climate commitments, including the Paris Agreement, Nationally Determined Contributions (NDCs), and the Net-Zero 2070 target. The Union Budget's emphasis on carbon capture solutions underscores India's strategy to balance climate action with industrial growth and export competitiveness amid global measures like the Carbon Border Adjustment Mechanism (CBAM).

Introduction: As defined by the Department of Science and Technology, Government of India, the Carbon Capture, Utilisation, and Storage programme aims to reduce carbon emissions by either storing or reusing captured carbon dioxide so that it does not enter the atmosphere. CCUS encompasses a variety of technologies and approaches designed to prevent the release of carbon dioxide, the primary driver of global warming and climate change.

Body:

  • For India, where emissions are projected to grow in the near and medium term due to construction and industrial expansion, CCUS is critical. In recent years, particularly after announcing its intention to achieve net-zero status by 2070 at the Glasgow climate conference in 2021, India has been actively promoting the development and deployment of indigenous CCUS technologies tailored to its specific needs and circumstances.
  • CCUS technologies are especially relevant for industrial sectors that face significant challenges in eliminating carbon dioxide. In industries such as steel or cement, a majority of CO2 emissions stem from production processes rather than fuel combustion. CCUS solutions offer the only viable pathway for reducing the carbon footprint of these sectors.
  • CCUS serves as a crucial facilitator of large-scale industrial decarbonisation. This support is vital for the cement sector, as it enables the adoption and scaling up of CCUS technology while meeting the country's long-term infrastructure requirements.
  • CCUS plays a "critical role in India's efforts to reduce CO2 emissions by half by 2050 and achieve net-zero status by 2070." "Net zero" refers to the reduction of greenhouse gas emissions to a level where they can be neutralised by absorption, either naturally or through artificial removal procedures, resulting in zero total emissions.

Barriers to the Deployment of Carbon Capture Technology

  • Despite being available for decades, CCUS technologies have seen limited deployment, primarily due to high costs, safety concerns, and challenges in scaling up. Currently, less than half a per cent of the nearly 40 billion tonnes of CO2 emitted globally each year is captured, amounting to barely 50 million tonnes annually.
  • The NITI Aayog report highlighted that "Because of the high mobilization and laying expenses, the economics of CCUS cluster projects in the initial years is quite challenging due to lower CO2 volumes and the outsized infrastructure created."
  • A 2023 report from the London School of Economics (LSE) further explained, "The amount of CO2 that needs to be captured through CCUS to deliver large-scale emission reductions is much larger than the current market for CO2 usage."

Conclusion: As countries grapple with making significant reductions in actual emissions, CCUS technologies hold the key to achieving net-zero status. There is no future pathway in which the world can keep global warming in check and achieve a global net-zero status by 2050 without substantial intervention from CCUS technologies.

Source: Why India needs carbon capture solutions, challenges it faces, Union Budget | Rs 20,000 cr for Carbon Capture Utilisation and Storage tech: How it works, and the push for it.

Points to Ponder

  1. Explore the different types of CCUS technologies.
  2. Consider related previous year questions, such as: "What is Carbon Capture, Utilization and Storage (CCUS)? What is the potential role of CCUS in tackling climate change?" (2025)
  3. Reflect on other environmental strategies, e.g., "The adoption of electric vehicles is rapidly growing worldwide. How do electric vehicles contribute to reducing carbon emissions and what are the key benefits they offer compared to traditional combustion engine vehicles?" (2023)

This practice session aims to bolster your UPSC CSE Mains preparation by providing structured insights and prompts for in-depth analysis. Engage with these questions to assess your progress and enhance your answer-writing proficiency.