UPSC Prelims 2012 · GS Paper I
Question 78: Economy and Social Development
Which of the following would include Foreign Direct Investment in India?
- 1.Subsidiaries of foreign companies in India
- 2.Majority foreign equity holding in Indian companies
- 3.Companies exclusively financed by foreign companies
- 4.Portfolio investment
Select the correct answer using the codes given below :
AnswerUPSC’s answer is (d).
Foreign direct investment means a lasting stake with control or significant influence in an enterprise: subsidiaries of foreign companies, majority foreign equity in Indian companies and wholly foreign-financed companies all count. Portfolio investment in shares and bonds, without control, is not FDI; it is financial investment that can enter and leave quickly.
- 1. Subsidiaries of foreign companies are FDI.
- 2. Majority foreign equity gives control, which is FDI.
- 3. Companies exclusively financed by foreign firms are FDI.
- 4. Portfolio investment carries no control and is not FDI.
How you could have got this
- If you were sure statement 2 is correct, (c) goes: it leaves 2 out.
What you needed to know: Majority foreign equity gives control, which is FDI.
- Then, if you were sure statement 4 is not correct, (a) and (b) go: each of them includes 4.
What you needed to know: Portfolio investment carries no control and is not FDI.
Only (d) is left. You didn’t need statements 1 or 3.
Which options go is worked out from UPSC’s key and the options, not by a model.
Why each option is right or wrong
- (a) Wrong: portfolio investment is not FDI.
- (b) Wrong: it includes portfolio investment and omits subsidiaries and wholly foreign-financed companies.
- (c) Incomplete: majority foreign equity holding is also FDI.
- (d) Correct: subsidiaries, majority foreign equity and wholly foreign-financed companies.
Answer: UPSC’s key. Explanation: written by UPSC Grade, not by UPSC.
Source: UPSC, Civil Services (Preliminary) Examination 2012, General Studies Paper I, Series A. The paper on upsc.gov.in.