Security Market in India: UPSC Previous Year Questions (Indian Economy)

Explanation

Option (a) is incorrect: While Foreign Direct Investment (FDI) can involve capital instruments like equity shares, it is not limited to listed companies. FDI typically involves acquiring a significant ownership stake (usually 10% or more) in a company, giving the investor management control or influence over business operations. FDI can occur in both listed and unlisted companies and often includes investments in infrastructure, manufacturing units, or joint ventures. In contrast, investments primarily in listed companies without control are characteristic of Foreign Portfolio Investment (FPI), which is passive and doesn’t provide managerial influence.

Option (b) is correct: FDI involves equity investment, meaning investors acquire ownership or a significant interest in a company. Since it doesn’t require repayment like loans, it is considered a non-debt capital flow, contributing positively to the host country’s economy without creating debt obligations.

Option (c) is incorrect: Debt-servicing refers to making interest and principal payments on loans. FDI doesn’t involve such obligations, as it is equity-based. Debt-servicing is more relevant to External Commercial Borrowings (ECBs) or other loan-based investment

Option (d) is incorrect: The investment can be made in equities or equity linked instruments or debt instruments issued by the company. Thus, FDI isn’t directly associated with government securities.