With reference to Foreign Direct Investment in India, which one of the following is considered its m

Question

With reference to Foreign Direct Investment in India, which one of the following is considered its major characteristic?

Accepted Answer

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. Thus, FDI isn’t directly associated with government securities, and hence option (d) is incorrect.Generally, FDI takes place when an investor establishes foreign business operations or acquires foreign business assets, including establishing ownership or controlling interest in a foreign company (investments linked with equities), transfer of technology. This means they aren’t just bringing money with them, but also knowledge, skills and technology. Debt servicing is the regular repayment of interest and principal on a debt for a particular period. Thus, option c is incorrect.A non-debt creating capital flow is the one where there is no direct repayment obligation for the residents. FDI is largely a non-debt creating capital flow, and therefore option (b) is correct.