UPSC CSE 2020 CSAT · Question 1

UPSC CSE 2020 CSAT question on Assumptions Relying Foreign Investment

CSAT is a qualifying paper.

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.

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. 1, 2 and 4
  2. 1, 3 and 5
  3. 2, 4 and 5
  4. 3 only
Show answer

Answer: B. 1, 3 and 5

Solution

  1. Core argument: foreign private investment is more volatile than private investment in general, so employment cannot be left to FDI; its volatility brings unstable jobs and wider income and regional inequality; even its one likely benefit, technology diffusion, is uncertain because India's physical and human capital may be inadequate.
  1. Statement 1: if FDI is volatile, worsens inequality and may not even deliver technology, then depending on it over the long run is unsound. Valid.
  1. Statement 2: the passage calls volatility a necessary consequence of FDI's search for the highest returns. If it is inherent, policy cannot remove it; the logic points away from FDI, not towards fixing it. Not valid.
  1. Statement 3: since employment cannot be left to FDI, and foreign investment is singled out as more volatile than private investment generally, the natural alternative is to strengthen domestic investment. Valid.
  1. Statement 4: the passage never compares public and private investment or ranks one above the other. Too extreme. Not valid.
  1. Statement 5: the passage says inadequate human capital may block technology diffusion. Building human capital means investing in education and health, which the author implicitly sees as needed. Valid.

Valid set: 1, 3 and 5.

Why the other options are wrong

  • (a) 1, 2 and 4: includes 2 (volatility is described as unavoidable) and 4 (no public vs private comparison in the passage).
  • (c) 2, 4 and 5: contains both invalid statements 2 and 4.
  • (d) 3 only: leaves out 1 and 5, both directly supported by the passage's reasoning.

Quick trick

  • Statement 4 uses a sweeping priority claim the passage never makes; striking it removes (a) and (c) at once.
  • Between (b) and (d), the closing line on inadequate human capital clearly supports statement 5, so (b) stands.

Remember

An assumption must follow from the author's own reasoning; reject statements that remedy something the author calls inherent or that bring in comparisons the passage never makes.

Hence the answer is (b).

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