(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 that involves debt-servicing.
(d) It is the investment made by foreign institutional investors in the Government Securities.
Answer: b
Explanation:
Concept of FDI as per OECD
Foreign direct investment reflects the objective of obtaining a lasting interest by a resident entity in one economy (‘‘direct investor’’) in an entity resident in an economy other than that of the investor (‘‘direct investment enterprise’’). The lasting interest implies the existence of a long-term relationship between the direct investor and the enterprise and a significant degree of influence on the management of the enterprise. Direct investment involves both the initial transaction between the two entities and all subsequent capital transactions between them and among affiliated enterprises, both incorporated and unincorporated.
According to RBI , in India ,Foreign Direct Investment (‘FDI’) means investment through equity instruments by a person resident outside India in an unlisted Indian company; or in 10% or more of the post issue paid-up equity capital on a fully diluted basis of a listed Indian company.
Advantage of FDI:
- Non- debt creating capital inflows
- Technology transfer- modern skills, innovation and new ideas
- Such an investment is not a burden on taxpayer
- Profits are reinvested in modernisation and expansion of existing units
- Makes real addition to the productive capacity of the capital importing countries
Foreign Portfolio Investment
Portfolio investment includes investments by a resident entity in one country in the equity and debt securities of an enterprise resident in another country which seek primarily capital gains and do not necessarily reflect a significant and lasting interest in the enterprise. The category includes investments in bonds, notes, money market instruments and financial derivatives other than those included under direct investment, or in other words, investments which are both below the ten per cent rule and do not involve affiliated enterprises. In addition to securities issued by enterprises, foreigners can also purchase sovereign bonds issued by governments.
Hence, option b is correct.
Read: Solved Economy PYQs With Explanation 2020 UPSC Prelims