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 largely non-debt creating capital flow.
- It is an investment which involves debt-servicing.
- It is the investment made by foreign institutional investors in the Government securities.
Explanation
Option (a) is incorrect
- An “FDI” or “Foreign Direct Investment” refers to an investment through equity instruments by a resident outside India, in an unlisted Indian company, or in ten per cent or more of the post-issue paid-up equity capital, on a fully diluted basis of a listed Indian company.
Option (b) is correct
- FDI is considered a non-debt creating capital flow because it involves the inflow of foreign capital into domestic companies without the requirement of repayment, unlike loans or bonds. This investment is used for business expansion, infrastructure development, or technology transfer, making it a stable and sustainable form of financing.
Option (c) is incorrect
- FDI does not involve debt-servicing. Debt servicing is a feature of loans or debt instruments where regular payments of interest and principal are required. FDI involves equity participation, which does not create any repayment obligations for the host country
Option (d) is incorrect
- Foreign Portfolio Investments (FPIs) refer to investments by non-residents in various Indian financial assets, including shares, government bonds, corporate bonds, convertible securities, and infrastructure securities.
