Which among the following is the most rational and critical inference that can be made from the above passage ?
- (a) Foregin portfolio investments are not good for emerging economies.
- (b) Advanced economies undermine the global financial stability.
- (c) India should desist from accepting foreign portfolio investments in the future.
- (d) Emerging economies are at a risk of shock from advanced economies. ✓ UPSC's answer
Why the answer is (d)
• The passage states that the share of portfolio investments from advanced economies in emerging economies has doubled to 12 percent over the past decade.
• It explicitly flags this phenomenon as a threat to global financial stability, specifically in the event of a chain reaction triggered by the US Federal Reserve's reversal of Quantitative Easing.
• Since the US is an advanced economy and the potential shock originates from its policy reversal, the risk is transmitted from advanced to emerging economies.
• Therefore, the most rational inference is that emerging economies face a risk of shock originating from advanced economies.
• This aligns with option (d), which captures the directional risk described in the text without making absolute or unsupported claims.
Why the other options are wrong
- (a) Foregin portfolio investments are not good for emerging economies.
- The passage identifies the investment as a potential threat to stability but does not conclude that foreign portfolio investments are inherently 'not good' for emerging economies.
- (b) Advanced economies undermine the global financial stability.
- The passage attributes the risk to a specific policy reversal by the US Federal Reserve, not to the general actions of all advanced economies undermining stability.
- (c) India should desist from accepting foreign portfolio investments in the future.
- The passage highlights a risk that requires policy attention but does not support the extreme inference that India should completely stop accepting foreign portfolio investments.
Asked in the CSAT Paper II of the UPSC Civil Services Preliminary Examination 2015, held on 23 August 2015. Question and answer key: Union Public Service Commission. Explanation: UPSC Answer Check.