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.
Correct Answer: Option B
Explanation
1. Foreign Direct Investment (FDI) refers to an investment made by a firm or individual from one country into business interests located in another country, typically involving establishing business operations or acquiring business assets, including ownership or controlling interest in a foreign company.
2. Option (A) is partially correct but not the defining characteristic. FDI involves investment through capital instruments, but it is not restricted to listed companies; it can also be in unlisted companies.
3. Option (B) is the most accurate major characteristic. FDI primarily represents equity investment, meaning it confers ownership or significant influence. Unlike loans or bonds, equity investment does not create a debt obligation for the recipient country. Therefore, it is considered a largely non-debt creating capital flow.
4. Option (C) is incorrect. Since FDI is mainly equity, it does not involve debt-servicing (like interest payments on loans). Returns on FDI typically come through dividends or profit repatriation.
5. Option (D) describes Foreign Portfolio Investment (FPI) or investment by Foreign Institutional Investors (FIIs) in Government securities, which is different from FDI.