With reference to Foreign Direct Investment in India, which one of the following is considered its major characteristic ?
It is the investment through capital instruments essentially in a listed company.
It is a largely non-debt creating capital flow.
It is the investment which involves debt-servicing.
It is the investment made by foreign institutional investors in the Government securities.
Answer is Wrong!
Answer is Right!
This question was previously asked in
UPSC IAS – 2020
– B) FDI primarily involves equity investment, meaning the foreign investor takes ownership stake in the domestic company. This inflow of capital is largely non-debt creating for the host country’s balance of payments, unlike external commercial borrowings or portfolio debt. This is a major characteristic. Correct.
– C) While the business receiving FDI might take on debt, the FDI inflow itself is equity, which leads to profit sharing or capital gains, not debt servicing in the traditional sense for the host economy’s external liabilities related to the FDI equity. Incorrect.
– D) Investment by foreign institutional investors (now Foreign Portfolio Investors – FPIs) in government securities is classified as Foreign Portfolio Investment (FPI), not FDI. FDI involves acquiring a lasting interest and control in an enterprise. Incorrect.