UPSC Previous Year Question | Prelims GS | 2020

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

Correct Answer

It is a largely non-debt creating capital flow.

Explanation

FDI is a non-debt creating capital flow, so it carries no repayment or debt-servicing obligation. It is not restricted to listed companies, and investment by FIIs in government securities is portfolio (debt) investment, not FDI.

Topics: capital flows, economy, external sector & international institutions, foreign direct investment - non-debt creating flow