UPSC Prelims 2020 · Question 81 of 100
UPSC Prelims 2020 question on FDI Non Debt Capital
- ExamUPSC CSE
- Year2020
- PaperGeneral Studies Paper I
- SubjectIndian Economy
- TopicExternal Sector of India
- DifficultyEasy
- TypeDirect
With reference to Foreign Direct Investment in India, which one of the following is considered its major characteristic?
Show answer
Answer: B. It is a largely non-debt creating capital flow.
Analysis
Foreign Direct Investment (FDI) is the investment by a non-resident entity/person resident outside India in the capital of an Indian company under Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2017.
The investment is done through capital instruments in (1) an unlisted Indian company; or (2) 10% or more of the post issue paid-up equity capital on a fully diluted basis of a listed Indian company.
Hence option (a) is incorrect — the investment can be made in equities or equity linked instruments or debt instruments issued by the company. FDI isn't directly associated with government securities.
A non-debt creating capital flow is one where there is no direct repayment obligation for the residents. FDI is largely a non-debt creating capital flow — hence option (b) is correct.
Hence option (b) — it is a largely non-debt creating capital flow — is the correct answer.
Statement by statement
Option (d) is also incorrect — FDI is not about investment by foreign institutional investors in Government Securities.
Option (c) is incorrect — Debt servicing is the regular repayment of interest and principal on a debt for a particular period. FDI isn't debt-servicing.