Q. Private investment in general is volatile. Foreign private investment is more volatile because the available investment avenues are significantly greater (i.e., the entire world).
Therefore, the responsibility of providing employment cannot be left to Foreign Direct investment (FDI). The current FDI inflows are volatile over time and across sectors and regions, which is a necessary consequence of their search for the highest returns. The adverse consequences are unstable employment and an accentuation of income and regional inequalities. A probable positive consequence of foreign investment is the inflow of new technology and its subsequent diffusion. However, the technology diffusion is not at all certain because the existing state of physical and human capital in India may prove inadequate for the diffusion.
Q1. With reference to the above passage, the following assumptions have been made:
1. Relying on foreign investment in the long run is not an economically sound policy.
2. Policies must be undertaken to reduce volatility in foreign private investment.
3. Policies must be undertaken to strengthen domestic private investment.
4. Public investment should be given priority over private investment.
5. Substantial public investment in education and health should be undertaken.
Which of the above assumptions is/are valid?
(a) 1, 2 and 4
(b) 1, 3 and 5
(c) 2, 4 and 5
(d) 3 only
Correct Answer: (b) 1, 3 and 5
Question from UPSC Prelims 2020 CSAT Paper
Explanation :
Statement 3 is correct, the author is stating the general volatility of the private investment; however, he is more critical about foreign direct investment. Hence it can be assumed that the policies must be undertaken to strengthen domestic investment to avoid the volatility of foreign direct investment.
Statement 2 is not correct, from the passage it can be deduced that foreign direct investment has innate nature of volatility and can not be rectified by the adoption of policies.
Statement 1 is correct, as the author is explaining at the start of the passage that foreign investment is volatile further and adverse consequences are unstable employment and an accentuation of income and regional inequalities.
Statement 4 is not correct, public investment is nowhere mentioned in the passage.
Statement 5 is correct, from the last sentence ‘However, the technology diffusion is not at all certain because the existing state of physical and human capital in India may prove inadequate for the diffusion.’ which reflects the inadequate human capital hence we can assume that Substantial public investment in education and health should be undertaken.
