Question

Directions for questions 15 to 20: Read the passage below and answer the question that follows.

A major problem of Indian industrial and commercial development was the supply of capital. Until 1850, British capital was shy of Indian adventure. The risks and unknown factors were too great, and prospects in other directions too bright. The working capital of the agency houses after 1813 at first consisted mainly of the savings of the Company's servants. Their cries of woe when these houses fell as in the crisis of 1831 were loud and poignant. Indian capital was also shy for different reasons. It needed to acquire confidence in the new regime, and outside the presidency towns, to acquire the habit of investment. Investment for large-scale production for 'enabling' works like railways was an unfamiliar and suspected practice. Thus the first big developments came when European capital was coaxed into the country by government guarantees or went of its own free will to develop industries with which it was already familiar as in the case of jute or coal. Indian capital followed where it was in touch with European practice as in Bombay and dealing with familiar products like cotton. These considerations throw into all the greater relief the achievement of the Tatas in developing iron and steel. Thus the major part of the capital provided was British with a steadily increasing Indian proportion from 1900. As late as 1931-32 the capital of companies registered abroad was nearly four times that of companies registered in India. But this is not an exact guide because it leaves out of account the stock in British companies held by Indians, as well as government stocks. Speaking generally it may be said that the capital of the cotton industry was mainly Indian, that of the iron and steel industry entirely so, that of the jute industry about half and half, while the coal and plantation industries were mainly British, together with that used for the building of railways, irrigation, and other public works. Management in the cotton and steel industries was mainly Indian though European technicians were freely employed, that of the jute, coal, and the plantation industries being European, the jute men in particular being Scotch. Their capital, apart of course from government enterprise, operated through joint-stock companies and managing agencies. The latter arose through the convenience found by bodies of capitalists seeking to develop some new activity and lacking any Indian experience, of operating through local agents. It arose in the period after 1813 when private merchants took over the trade formerly monopolized by the Company. The money would be found in Britain to promote a tea garden, a coal mine, or a jute mill, but the management would be confided to a firm already on the spot. The managing agency was the hyphen connecting capital with experience and local knowledge.

Until 1914 the policy of the government continued in the main to be one of 'enabling' private capital and enterprise to develop the country. Direct promotion was confined to public utilities like canals and railways. The line between enabling and interfering action became distinctly blurred, however, in the case of the cotton industry and there was a tendency for enabling action to pass over into the positive promotion of particular projects. This was most noticeable in the time of Lord Curzon with his establishment of an imperial department of agriculture with a research station at Pusa and a department of commerce and industry presided over by a sixth member of the Viceroy's Council. The first World War began the transition to a new period of active promotion and positive support. As the conflict lengthened there arose a demand for Indian manufactured goods. India failed to take full advantage of this opportunity, partly because of uncertainty as to the future and partly because the means for sudden expansion were lacking. The outcome of this situation was the appointment of an industrial commission in 1916 under pressure from London. The commission criticized the unequal development of Indian industry which had led to the missing of her war opportunity. A much closer co-operation with industry was planned through provincial departments of industry. Increased technical training and technical assistance to industry was proposed while it was suggested that the Central government should set up a stores department which should aim at making India self-sufficing in this respect. The commission's report was only partially implemented, but a stores department and provincial industrial departments were created and something was done towards promoting technical assistance. The importance of the report and its aftermath was that it marked the transition from the conception of Indian economy in broadly colonial terms with freedom for private enterprise to the conception of India as an autonomous economic unit.

From this passage, it can be inferred that one of the problem that could have cropped up in the early stages of industrialization might have been:

• A. government interference in day-to-day operations of business.
• B. equitable sharing of risks between domestic and foreign investors.
• C. ensuring adequate working capital.
• D. regulation of the stock markets to protect investors from dubious enterprises.

Hint:

Look for a problem that has to be pieced together from several details in the passage (how foreign capital versus domestic capital entered), rather than one the passage states directly in its opening line.

Answer 1

The Correct Option is B

Step 1: Understanding the Concept:
The question wants a problem we can infer as likely to have arisen in early Indian industrialization, built from the passage's details, not the problem the passage already announces in its first sentence.

Step 2: Key Formula or Approach:
Rule out any option the passage contradicts outright, rule out any option that only restates what the passage already says directly, and then check what remains against the pattern of details given about foreign versus domestic capital.

Step 3: Detailed Explanation:
Government interference is ruled out because the passage calls the policy before 1914 "enabling," the opposite of interference, with blurring only in one industry later on.
Stock market regulation is ruled out because the passage never once mentions stock markets or investor fraud.
Alignment between capitalists and managers is ruled out because the managing agency, "the hyphen connecting capital with experience and local knowledge," is described as working well, not as a source of conflict.
Adequate working capital is the passage's own opening statement, "a major problem of Indian industrial and commercial development was the supply of capital." Since it is given directly, it is not something we infer; it is the premise the rest of the passage explains.
That leaves equitable risk-sharing between domestic and foreign investors. The passage shows European capital entering first, several times under government guarantees that reduced its risk, while Indian capital stayed cautious and only came in later, in industries it already understood, such as cotton. Foreign capital effectively had a safety net that domestic capital did not share in the same period, which is exactly an unequal risk-sharing pattern, built up from several details rather than stated once.

Step 4: Final Answer:
The inferred problem is unequal or inequitable risk-sharing between domestic and foreign investors in the early stage of industrialization, so the answer is option 2. \[ \boxed{\text{Option 2: equitable sharing of risks between domestic and foreign investors}} \]