MCQs with answers on “Foreign Direct Investment in India: Prospects and Issues” for the Civil Services Examination

What does FDI stand for in the context of economic investment?
- A) Foreign Domestic Investment
- B) Foreign Direct Investment
- C) Federal Direct Investment
- D) Foreign Development Investment
Answer: B) Foreign Direct Investment
Which Indian agency is responsible for approving FDI proposals?
- A) Reserve Bank of India (RBI)
- B) Securities and Exchange Board of India (SEBI)
- C) Department for Promotion of Industry and Internal Trade (DPIIT)
- D) Ministry of External Affairs (MEA)
Answer: C) Department for Promotion of Industry and Internal Trade (DPIIT)
What is the primary benefit of FDI for developing countries like India?
- A) Increase in trade barriers
- B) Development of local industries
- C) Reduction in foreign aid
- D) Exchange rate fluctuations
Answer: B) Development of local industries
Which sector in India has been the most open to FDI?
- A) Defense
- B) Retail
- C) Agriculture
- D) Education
Answer: B) Retail
Which policy framework governs FDI in India?
- A) Foreign Investment Promotion Act (FIPA)
- B) Foreign Exchange Management Act (FEMA)
- C) Trade and Investment Policy (TIP)
- D) Indian Investment Regulation Act (IIRA)
Answer: B) Foreign Exchange Management Act (FEMA)
What was the main aim of the Make in India initiative?
- A) Increase exports
- B) Encourage foreign investment and manufacturing
- C) Restrict imports
- D) Enhance agricultural productivity
Answer: B) Encourage foreign investment and manufacturing
Which of the following is a major challenge faced by FDI in India?
- A) High level of foreign reserves
- B) Complex regulatory environment
- C) Excessive transparency in government dealings
- D) Low interest rates
Answer: B) Complex regulatory environment
Which sector was liberalized to allow 100% FDI under the automatic route in recent years?
- A) Railways
- B) Defense
- C) Telecom
- D) Insurance
Answer: C) Telecom
What is the primary purpose of the National Investment and Infrastructure Fund (NIIF)?
- A) To promote domestic investment
- B) To support infrastructure projects through FDI
- C) To regulate foreign investments
- D) To provide subsidies to local industries
Answer: B) To support infrastructure projects through FDI
Which Indian state has been recognized for its favorable policies towards FDI?
- A) Uttar Pradesh
- B) Kerala
- C) Gujarat
- D) West Bengal
Answer: C) Gujarat
How does FDI impact employment in host countries?
- A) It usually leads to job losses
- B) It has no impact on employment
- C) It generally creates new jobs
- D) It reduces job quality
Answer: C) It generally creates new jobs
Which of the following is an advantage of FDI for a host country like India?
- A) Reduced market competition
- B) Enhanced technology transfer
- C) Increased trade tariffs
- D) Decreased local production
Answer: B) Enhanced technology transfer
Which policy change aimed to increase FDI inflows in the Indian defense sector?
- A) Allowing 49% FDI under the automatic route
- B) Restricting FDI to government entities
- C) Introducing higher import tariffs
- D) Promoting domestic manufacturing only
Answer: A) Allowing 49% FDI under the automatic route
What is the significance of the ‘automatic route’ in FDI regulations?
- A) It requires no prior approval for investments
- B) It necessitates a detailed review before approval
- C) It is reserved for domestic investments
- D) It limits foreign investment to 10%
Answer: A) It requires no prior approval for investments
Which international organization monitors global FDI flows?
- A) World Bank
- B) International Monetary Fund (IMF)
- C) United Nations Conference on Trade and Development (UNCTAD)
- D) World Trade Organization (WTO)
Answer: C) United Nations Conference on Trade and Development (UNCTAD)
What impact does FDI have on the Indian economy’s balance of payments?
- A) It leads to a deficit
- B) It generally improves the balance of payments
- C) It has no effect
- D) It creates a trade surplus
Answer: B) It generally improves the balance of payments
Which initiative aims to improve the ease of doing business for foreign investors in India?
- A) Digital India
- B) Startup India
- C) Ease of Doing Business Reforms
- D) Skill India
Answer: C) Ease of Doing Business Reforms
Which of the following sectors has restrictions on FDI in India?
- A) Renewable energy
- B) Defense
- C) E-commerce
- D) Real estate
Answer: D) Real estate
What is the effect of FDI on local businesses in host countries?
- A) It generally boosts local businesses
- B) It has no effect on local businesses
- C) It usually leads to local business closures
- D) It restricts local market competition
Answer: A) It generally boosts local businesses
Which Indian policy document outlines the country’s FDI strategy?
- A) National Investment Policy
- B) Foreign Trade Policy
- C) National Policy on Skills
- D) National Investment Promotion and Facilitation Agency Guidelines
Answer: A) National Investment Policy
Which of the following is a common form of FDI entry?
- A) Franchising
- B) Joint ventures
- C) Licensing
- D) Exporting
Answer: B) Joint ventures
What does the term ‘greenfield investment’ refer to in the context of FDI?
- A) Investment in existing facilities
- B) Investment in new projects or facilities
- C) Investment in stock markets
- D) Investment in public infrastructure
Answer: B) Investment in new projects or facilities
Which Indian body provides assistance and information to foreign investors?
- A) Foreign Investment Promotion Board (FIPB)
- B) Reserve Bank of India (RBI)
- C) National Bank for Agriculture and Rural Development (NABARD)
- D) Securities and Exchange Board of India (SEBI)
Answer: A) Foreign Investment Promotion Board (FIPB)
How does FDI contribute to technological advancement in India?
- A) It limits access to new technologies
- B) It enhances local firms’ access to advanced technology
- C) It has no effect on technological advancement
- D) It restricts technological exchange
Answer: B) It enhances local firms’ access to advanced technology
What challenge is associated with the repatriation of FDI profits?
- A) Excessive taxation
- B) Legal restrictions
- C) Political instability
- D) Exchange rate volatility
Answer: D) Exchange rate volatility
Which sector has seen significant FDI inflow under the ‘Make in India’ initiative?
- A) Textiles
- B) Pharmaceuticals
- C) Information Technology
- D) Mining
Answer: C) Information Technology
What is the role of the Department of Industrial Policy and Promotion (DIPP) in FDI?
- A) Regulating currency exchange
- B) Promoting and facilitating FDI
- C) Setting interest rates
- D) Managing trade tariffs
Answer: B) Promoting and facilitating FDI
What impact does FDI have on infrastructure development in India?
- A) It often leads to underdevelopment
- B) It accelerates infrastructure development
- C) It has no impact on infrastructure
- D) It reduces investment in infrastructure
Answer: B) It accelerates infrastructure development
Which Indian initiative aims to attract foreign investment in the startup ecosystem?
- A) Digital India
- B) Startup India
- C) Skill India
- D) Make in India
Answer: B) Startup India
Which region in India is known for attracting a large share of FDI due to its business-friendly policies?
- A) North Eastern Region
- B) Southern Region
- C) Western Region
- D) Central Region
Answer: C) Western Region

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