UPSC Prelims 2021 Question:

Consider the following

1. Foreign currency convertible bonds 
2. Foreign institutional investment with certain conditions
3. Global depository receipts 
4. Non-resident external deposits
   
   

Which of the above can be included in Foreign Direct Investments?

Explanation:

• Foreign currency convertible bonds: It is a bond issued by an Indian company expressed in foreign currency, and the principal and interest in respect of which is payable in foreign currency. It is a Foreign Direct Investment. So, point 1 is correct.
• FDI according to the IMF and OECD definitions: The acquisition of at least ten percent of the ordinary shares or voting power in a public or private enterprise by non- resident investors makes it eligible to be categorized as foreign direct investment (FDI). India follows the same. So, point 2 is correct.
• A global depositary receipt (GDR) is a negotiable financial instrument issued by a depositary bank. It represents shares in a foreign company and trades on the local stock exchanges in investors' countries. GDRs are foreign investments in the form of equity shares issued outside India by a Depository Bank, on behalf of an Indian company which is covered under the FDI policy. GDR proceeds are thus reckoned as Foreign Direct Investment. So, point 3 is correct.
• Non-Resident external deposits is a rupee-denominated account that Non-Resident Indians (NRIs) can open. Investment by a company owned and controlled by non-resident Indians (NRIs) on a non-repatriation basis will not be considered foreign direct investment (FDI). So, only NRI investments that are repatriable are considered FDI. So, point 4 is not correct.

Therefore, option (a) is the correct answer.

Subject: Economics | Financial Sectors and Capital Market