UPSC Prelims 2020 CSAT Paper II · Q21 of 80 Comprehension medium

Passage

Directions for the following 7 (seven) items : Read the following five passages and answer the items that follow. Your answers to these items should be based on the passages only. 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 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.

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?

  1. (a) 1, 2 and 4
  2. (b) 1, 3 and 5 ✓ UPSC's answer
  3. (c) 2, 4 and 5
  4. (d) 3 only

Why the answer is (b)

• The passage states that FDI inflows are volatile over time, sectors and regions, and that employment cannot be left to FDI, so assumption 1 is valid.

• It does not say volatility in FDI can or should be reduced by policy; volatility is presented as a necessary consequence of FDI seeking highest returns, so assumption 2 is not valid.

• Since employment cannot be left to FDI, the passage supports policies to strengthen domestic private investment, making assumption 3 valid.

• The passage never compares public and private investment or says public investment should be prioritised, so assumption 4 is not valid.

• It says technology diffusion may fail because physical and human capital in India may be inadequate; human capital is built through education and health, so assumption 5 is valid.

• Therefore the valid assumptions are 1, 3 and 5, which is option (b).

Why the other options are wrong

(a) 1, 2 and 4
Option (a) is wrong because it includes assumptions 2 and 4, which are not supported by the passage.
(c) 2, 4 and 5
Option (c) is wrong because it includes assumptions 2 and 4 and omits valid assumptions 1 and 3.
(d) 3 only
Option (d) is wrong because it lists only assumption 3 and omits valid assumptions 1 and 5.

Asked in the CSAT Paper II of the UPSC Civil Services Preliminary Examination 2020, held on 4 October 2020. Question and answer key: Union Public Service Commission. Explanation: UPSC Answer Check.

Reading the answer is not the same as getting it right under a clock. Practise this question with UPSC's negative marking, and anything you miss goes into an error notebook until you get it right twice.

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