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

[UPSC Civil Services Exam – 2020 Prelims]

(a) It is the investment through capital instruments essentially in a listed company.

(b) It is a largely non-debt creating capital flow.

(c) It is the investment which involves debt-servicing.

(d) It is the investment made by foreign institutional investors in the Government securities.

Answer: (b)        

Explanation:

• Option 3 is incorrect because FDIs (Foreign Direct Investments) are not directly linked to the concept of debt service, which refers to the cash required for interest and principal repayment on a debt.
• Option 1 is incorrect because FDI investments can be made in either an unlisted Indian company or in a listed Indian company with a stake of 10% or more of the post-issue paid-up equity capital on a fully diluted basis.
• Option 4 is incorrect because FDI investments can be made in equities or equity-linked instruments, as well as in debt instruments issued by the company. However, FDI investments are not directly associated with government securities.