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.
Correct Answer
C
It is the investment which involves debt-servicing.
D
It is the investment made by foreign institutional investors in the Government securities.
Explanation
FDI is a non-debt creating capital flow because it involves equity investment where the investor takes a long-term stake, meaning the host country does not incur a repayment obligation or interest burden. Option (a) is incorrect because FDI is not restricted to listed companies and frequently occurs in unlisted entities or through greenfield projects. The core concept tested is the classification of capital account components in the Balance of Payments (BoP), specifically the distinction between debt-creating flows (like loans) and equity-based foreign investments.
External SectorForeign Direct Investment (FDI)Foreign Direct InvestmentFDIcapital instrumentslisted companynon-debt creating capital flowdebt-servicingforeign institutional investorsGovernment securities