External sector & international economic bodies

Answer: (a) 1, 2 and 3

India's FDI policy counts money raised through FCCBs and depository receipts (GDRs/ADRs) as FDI, and any foreign holding of 10 per cent or more in a listed company is FDI, so portfolio investment crossing that line is reclassified. NRE deposits are bank deposits, a debt flow, not investment in a company's capital.

• ✓ 1. The Consolidated FDI Policy states that inward remittances from issuing FCCBs are treated as FDI and counted towards FDI.
• ✓ 2. The 'certain conditions' is the 10 per cent test: a foreign holding of ten per cent or more of a listed Indian company's paid-up equity is defined as FDI, so an institutional investor crossing it is counted as FDI.
• ✓ 3. Depository receipts such as GDRs represent shares of the Indian company, and the policy counts DR proceeds as FDI.
• ✗ 4. Non-Resident External (NRE) deposits are rupee bank deposits of NRIs; they create a liability of the bank, not an equity stake in a company, so they are not FDI.

Remember · FDI = capital instruments in an unlisted company, or 10% or more of a listed one. FCCB and DR (ADR/GDR) proceeds count as FDI; NRI deposits do not.

Question and answer: UPSC's official GS Paper I (2021, Series A) — paper ↗ · answer key ↗. Explanation: Minimalist IAS, checked 30 Sept 2026 (how we verify). Permalink · Report an error

Answer: (a) 1 only

Devaluation makes the domestic currency cheaper, so the country's goods become cheaper for foreign buyers. That is its one certain effect. It lowers, not raises, the currency's foreign value, and whether the trade balance improves depends on how exports and imports respond, so it is not guaranteed.

• ✓ 1. A cheaper rupee means a foreign buyer pays fewer dollars for the same Indian product, so exports become more price-competitive.
• ✗ 2. Devaluation is an official act that raises the exchange rate, making the domestic currency cheaper; its foreign value falls.
• ✗ 3. The trade balance improves only if export and import volumes respond enough; if imports such as crude oil cannot be cut, the import bill can rise and the balance may worsen.

Remember · Devaluation (fixed rate, by government) and depreciation (market-driven) both make the home currency cheaper; exports gain competitiveness, but the trade balance need not improve.

📘 Read it in NCERT: Class 12 Introductory Macroeconomics, Ch 6 (practise this chapter) · Class 12 Introductory Macroeconomics, Ch 6 (practise this chapter) · Class 12 Introductory Macroeconomics, Ch 6 (practise this chapter)

Question and answer: UPSC's official GS Paper I (2021, Series A) — paper ↗ · answer key ↗. Explanation: Minimalist IAS, checked 30 Sept 2026 (how we verify). Permalink · Report an error