Question 7

Foreign Direct Investment (FDI) generally involves a lasting interest and significant control or influence by an investor in an enterprise in another country, as opposed to Foreign Portfolio Investment (FPI), which is more about short-term capital gains without significant control.

1. Foreign Currency Convertible Bonds (FCCBs): These are bonds issued by Indian companies in foreign currency that can be converted into equity shares of the issuing company at a predetermined price. When FCCBs are converted into equity, they are treated as FDI. Even before conversion, depending on the terms and the investor's intent, they can be classified as FDI if they lead to effective control or a significant stake.

2. Foreign Institutional Investment with certain conditions: While Foreign Institutional Investment (FII), now largely subsumed under Foreign Portfolio Investment (FPI), is typically portfolio investment, it can be classified as FDI if the investment crosses a certain threshold (e.g., 10% or more of the paid-up capital of an Indian company as per Indian regulations). This threshold indicates a 'lasting interest' and potential for 'significant influence or control', thus converting it into FDI.

3. Global Depository Receipts (GDRs): GDRs are financial instruments issued by a depository bank in a foreign country, representing ownership in a specified number of shares of a foreign company. When an Indian company issues GDRs and foreign investors subscribe to them, this brings foreign capital into the company. If the holding through GDRs exceeds the prescribed FDI threshold (e.g., 10%), it is treated as FDI.

4. Non-Resident External Deposits (NRE deposits): NRE deposits are bank accounts held by Non-Resident Indians (NRIs) in India. These are typically savings or fixed deposits and are a form of debt or portfolio investment, not equity investment that provides control or lasting interest in a business. Therefore, NRE deposits are not classified as FDI.

Based on these definitions and Indian regulations, FCCBs, FII/FPI (when meeting FDI thresholds), and GDRs (when meeting FDI thresholds) can be included in Foreign Direct Investments.