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UPSC Prelims 2020 Paper-1 📅 04 Oct, 2020

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

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.
Result Summary
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APEDIA

UPSC Prelims
2020 • 04 Oct, 2020 • Paper-1
With reference to Foreign Direct Investment in India, which one of the following is considered its major characteristic?
Correct Answer
It is a largely non-debt creating capital flow.
Nature of Investment: Foreign Direct Investment (FDI) represents an equity-based capital inflow where a foreign entity acquires a lasting financial interest and......
Ref/Book : UPSC Prelims 2020
Ref. Subject Economy
Chapter -
Ref. Topic Foreign Investment
Pg. No -
💡 Analysis & Explanation
Nature of Investment ▼
Foreign Direct Investment (FDI) represents an equity-based capital inflow where a foreign entity acquires a lasting financial interest and a degree of management control in an enterprise operating within India.
Distinction from Debt ▼
Unlike external commercial borrowings or sovereign loans, FDI brings in capital as an ownership stake. Consequently, it does not impose direct repayment obligations or fixed interest burdens on the recipient country. The foreign investor shares the operational and financial risk instead.
Evaluating Alternatives ▼
FDI is absolutely not restricted merely to listed companies; it occurs heavily in unlisted private startups. By definition, it is contrary to debt-servicing. Additionally, speculative investments in government securities fall under Foreign Portfolio Investment (FPI), not FDI.
Conclusion ▼
Its primary structural and macroeconomic benefit is that it is a largely non-debt creating capital flow.
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