Civil Services Prep

Prelims 2020 · Economy · Question 81

With reference to Foreign Direct Investment in India, which one of the following is considered its major characteristic?

  1. It is the investment through capital instruments essentially in a listed company.
  2. It is a largely non-debt creating capital flow.
  3. It is the investment which involves debt-servicing.
  4. It is the investment made by foreign institutional investors in the Government Securities.

Answer

It is a largely non-debt creating capital flow.

  • (a) FDI is not confined to listed companies; it can come into unlisted companies too through equity instruments. Verdict: Incorrect.
  • (b) FDI is treated as a non-debt creating capital flow because it brings equity/ownership capital, not a repayment obligation like external debt. Verdict: Correct.
  • (c) Debt-servicing is a feature of external borrowings/debt flows, not FDI. Verdict: Incorrect.
  • (d) Investment by foreign institutional/portfolio investors in Government Securities is FPI/FII, not FDI. Verdict: Incorrect.
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