2020 GS Paper I, all questions

UPSC Prelims 2020 · GS Paper I

Question 51: Economy and Social Development

With reference to Foreign Direct Investment in India, which one of the following is considered its major characteristic ?

aIt is the investment through capital instruments essentially in a listed company.
bIt is a largely non-debt creating capital flow.
cIt is the investment which involves debt-servicing.
dIt is the investment made by foreign institutional investors in the Government securities.

AnswerUPSC’s answer is (b).

FDI is foreign investment, mostly equity, made with a lasting interest in an enterprise, and it carries no repayment or interest obligation, unlike loans and bonds. It is therefore a largely non-debt-creating capital flow. It is not limited to listed companies, it does not involve debt servicing, and investment by foreign institutional investors in government securities is portfolio investment, not FDI.

Why each option is right or wrong
  • (a) Wrong: FDI is not limited to listed companies; unlisted firms also receive it.
  • (b) Right: FDI is largely a non-debt-creating flow.
  • (c) Wrong: FDI is equity, so it involves no debt servicing.
  • (d) Wrong: investment by foreign institutional investors in government securities is portfolio investment.

Answer: UPSC’s key. Explanation: written by UPSC Grade, not by UPSC.

Practise this paper timedPrevious questionNext question

Source: UPSC, Civil Services (Preliminary) Examination 2020, General Studies Paper I, Series A. The paper on upsc.gov.in.