UPSC Prelims 2020·GS1·economy·open economy

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

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Last updated 8 Jul 2026, 4:39 pm IST
  1. AIt is the investment through capital instruments essentially in a listed company.
  2. BIt is a largely non-debt creating capital flow.Correct
  3. CIt is the investment which involves debt-servicing.
  4. DIt is the investment made by foreign institutional investors in the Government securities.

Explanation

Foreign Direct Investment (FDI) represents an investment by a foreign entity directly into productive assets or businesses in a host country. This usually involves establishing new facilities, expanding existing operations, or acquiring a significant ownership stake in a local company. Unlike loans or Foreign Portfolio Investment (FPI) in debt instruments, FDI primarily takes the form of equity investment. This means the foreign investor acquires ownership (shares) in the domestic entity, and the capital inflow does not create a repayment obligation for the host country or the recipient firm. Hence, it is considered a largely non-debt creating capital flow, as the returns to the investor are dependent on the profitability of the enterprise, rather than fixed interest payments.

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