Consider the following :
- 1. Foreign currency convertible bonds
- 2. Foreign institutional investment with certain conditions
- 3. Global depository receipts
- 4. Non-resident external deposits
Which of the above can be included in Foreign Direct Investments?
1, 2 and 3
3 only
2 and 4
1 and 4
Answer is Wrong!
Answer is Right!
This question was previously asked in
UPSC IAS – 2021
1. Foreign currency convertible bonds (FCCBs): While primarily debt instruments, they are convertible into equity. If converted, and the resulting equity holding is 10% or more, the investment originating from the FCCB can be classified as FDI.
2. Foreign institutional investment with certain conditions: Foreign Portfolio Investment (FPI), previously FII, is typically for portfolio diversification with less than 10% equity holding. However, if an FII/FPI invests with “certain conditions” implying the acquisition of 10% or more of the equity shares of an Indian company, it is reclassified and included under FDI.
3. Global depository receipts (GDRs): Similar to FCCBs, GDRs represent underlying equity shares of an Indian company listed abroad. If a foreign investor acquires GDRs leading to a 10% or more equity holding in the underlying Indian company, this investment can be treated as FDI.
4. Non-resident external deposits (NRE deposits): These are bank deposits held by non-resident Indians. They are financial liabilities of the banking system and do not represent equity investment or control in Indian companies. Therefore, they are not considered FDI.
Given the potential for 1, 2, and 3 to meet the FDI threshold based on the underlying equity acquisition and intent, they can be included in FDI under specific conditions, whereas 4 cannot.