- A) FDI can be made in both listed and unlisted companies, not essentially limited to listed ones. Incorrect. - 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.
With reference to Foreign Direct Investment in India, which one of the following is considered its major characteristic ?
Asked in UPSC IAS 2020 · Topic: Foreign Direct Investment (FDI) and Foreign Portfolio Investment (FPI) (Definition, Features, and Distinction between FDI and FPI)
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Answer: B. It is a largely non-debt creating capital flow.
Read the notes: Foreign Direct Investment (FDI) and Foreign Portfolio Investment (FPI) →
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