With reference to Foreign Direct Investment in India, which one of the following is considered its major characteristic ?
- (a) It is the investment through capital instruments essentially in a listed company.
- (b) It is a largely non-debt creating capital flow. ✓ UPSC's answer
- (c) It is the investment which involves debt-servicing.
- (d) It is the investment made by foreign institutional investors in the Government securities.
Why the answer is (b)
• FDI is investment in equity or equity-like capital instruments that gives a lasting interest and a say in management; the investor shares in profits and risks rather than being owed a fixed repayment.
• It is therefore a largely non-debt-creating capital flow, unlike external commercial borrowings or NRI deposits — option (b).
• Hence option (b).
Why the other options are wrong
- (a) It is the investment through capital instruments essentially in a listed company.
- FDI covers unlisted companies too; listing is not its essence.
- (c) It is the investment which involves debt-servicing.
- Debt servicing characterises borrowings, not FDI.
- (d) It is the investment made by foreign institutional investors in the Government securities.
- FII investment in G-secs is portfolio investment, not FDI.
Asked in the GS Paper I of the UPSC Civil Services Preliminary Examination 2020, held on 4 October 2020. Question and answer key: Union Public Service Commission. Explanation: UPSC Answer Check.