Question
UPSC Prelims 2020 Question:
With reference to Foreign Direct Investment in India, which one of the following is considered its major characteristic?
Answer (Detailed Solution Below)
Option 2: It is a largely non-debt creating capital flow.
Detailed Solution
Explanation:
- Foreign Direct Investment (FDI) is the investment through equity instruments by a person resident outside India in either of the two:
- An unlisted Indian company
- 10% or more of the post issue paid-up equity capital on a fully diluted basis of a listed Indian company
- A debt flow is a type of foreign capital where there is obligation for the residents to repay it. A non-debt flow is the one where there is no direct repayment obligation for the residents. For example, in the case of FDI, there is no debt payment obligation.
- Debt servicing is the regular repayment of a debt's interest and principal over a certain period of time. FDI does not require paying off debt.
Therefore, option (2) is the correct answer.
Subject: Economics | Foreign Trade and Investment
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