A Japanese company sets up a new factory in India with its own funds.…

A Japanese company sets up a new factory in India with its own funds. For India, this is an example of:

Answer & explanation

Correct answer: option 3

The correct answer is Option (3) → capital flowing from a foreign country into the domestic country

The Japanese company brings its own capital into India. For India, this is capital flowing from a foreign country into the domestic country.

Option (1) export of goods to the rest of the world — Incorrect. No goods are sold by India to the rest of the world.

Option (2) the domestic country exporting capital to a foreign country — Incorrect. Capital comes into India; India is not sending capital out.

Option (3) capital flowing from a foreign country into the domestic country — Correct. Foreign capital flows into India.

Option (4) import of goods from the rest of the world — Incorrect. Setting up a factory with funds is a capital flow, not a purchase of goods.

NCERT (2026-27): “1.2 Context of the Present Book of Macroeconomics … So far we have described the major players in the domestic economy. But all the countries of the world are also engaged in external trade. The external sector is the fourth important sector in our study. Trade with the external sector can be of two kinds
1. The domestic country may sell goods to the rest of the world. These are called exports.
2. The economy may also buy goods from the rest of the world. These are called imports. Besides exports and imports, the rest of the world affects the domestic economy in other ways as well.
3. Capital from foreign countries may flow into the domestic country, or the domestic country may be exporting capital to foreign countries.”