UPSC Prelims 2020— Question 81

This question tests foreign direct investment. The key concept is: FDI is primarily a non-debt-creating capital flow involving lasting interest and a degree of control or significant influence in an enterprise. It is not simply investment in listed companies, not necessarily debt requiring fixed servicing, and is distinct from foreign portfolio investment in government securities. The verified answer for the uploaded Set-B paper is option B. Option A — It is the investment through capital instruments essentially in a listed company.: This is not the correct option. The option does not match the verified combination or conclusion. The decisive point is the distinction explained above: FDI is primarily a non-debt-creating capital flow involving lasting interest and a degree of control or significant influence in an enterprise. It is not simply investment in listed companies, not necessarily debt requiring fixed servicing, and is distinct from foreign portfolio investment in government securities. Therefore this alternative should be eliminated even if part of its wording appears plausible in isolation. Option B — It is a largely non-debt creating capital flow.: This is the correct option. It matches the verified conclusion because FDI is primarily a non-debt-creating capital flow involving lasting interest and a degree of control or significant influence in an enterprise. It is not simply investment in listed companies, not necessarily debt requiring fixed servicing, and is distinct from foreign portfolio investment in government securities. The wording of the option is consistent with the governing concept tested by the question. Option C — It is the investment which involves debt-servicing.: This is not the correct option. The option does not match the verified combination or conclusion. The decisive point is the distinction explained above: FDI is primarily a non-debt-creating capital flow involving lasting interest and a degree of control or significant influence in an enterprise. It is not simply investment in listed companies, not necessarily debt requiring fixed servicing, and is distinct from foreign portfolio investment in government securities. Therefore this alternative should be eliminated even if part of its wording appears plausible in isolation. Option D — It is the investment made by foreign institutional investors in the Government securities.: This is not the correct option. The option does not match the verified combination or conclusion. The decisive point is the distinction explained above: FDI is primarily a non-debt-creating capital flow involving lasting interest and a degree of control or significant influence in an enterprise. It is not simply investment in listed companies, not necessarily debt requiring fixed servicing, and is distinct from foreign portfolio investment in government securities. Therefore this alternative should be eliminated even if part of its wording appears plausible in isolation. For UPSC-style elimination, first identify the exact proposition being tested, then evaluate each statement independently before comparing the answer codes. Avoid treating a broad or absolute statement as correct merely because its general theme is familiar. The precise qualifiers in the question—such as 'all', 'only', 'cannot', 'largest', 'always' or a specific institutional role—often determine the answer. On that basis, option B is the verified answer.