https://d19k0hz679a7ts.cloudfront.net/value_added_material/UPSC-CSAT-2020-SET-C.pdf
Passage – 1
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 District 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
Ans. (b)
Statement 1 is a correct assumption since the passage clearly highlights the negative consequences of foreign investment.
Statement 2 is wrong since it implies that the State has the ability to interfere and reduce volatility in foreign private investment. This is contrary to economic logic and the passage also makes no such reference to capability of the State to reduce such volatility.
Statement 4 seems to be correct given the passage begins by highlighting that private investment is volatile. Similarly, Statement 5 sounds correct for it gives primacy to the importance of public investment in some sectors.
Since, statement 2 is wrong, it is therefore prudent to eliminate Options (a) & (c).
Option (d) does not include Statements 1, 4 or 5. Therefore, the most valid option seems to be Option (b).