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?

Passage

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.

QUESTION

CSAT

Easy

Comprehension

Prelims 2020

With reference to the above passage, the following assumptions have been made:

Relying on foreign investment in the long run is not an economically sound policy.
Policies must be undertaken to reduce volatility in foreign private investment.
Policies must be undertaken to strengthen domestic private investment.
Public investment should be given priority over private investment.
Substantial public investment in education and health should be undertaken.

Which of the above assumptions is/are valid?

Select an option to attempt

Explanation

Statement 1 is correct. The passage emphasizes the negative consequences of foreign investment, supporting the assumption that relying on it in the long run is not economically sound.

Statement 2 is incorrect. This suggests that the State has the ability to reduce volatility in foreign private investment, which contradicts economic logic. The passage does not support the claim that the State can mitigate such volatility.

Statement 3 is correct. Strengthening domestic private investment aligns with the need for sustainable and less volatile economic growth, which is implied in the passage.

Statement 4 is incorrect. The passage does not support the idea that public investment should always take precedence over private investment, making this statement invalid.

Statement 5 is correct. The passage underscores the importance of substantial public investment in sectors like education and health.

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