Classification of Foreign Direct Investment Components
Question
Consider the following: Which of the above can be included in Foreign Direct Investments?
- 1.
Foreign currency convertible bonds
- 2.
Foreign institutional investment with certain conditions
- 3.
Global depository receipts
- 4.
Non-resident external deposits
Options
1, 2 and 3
3 only
2 and 4
1 and 4
Explanation
Statements 1, 2, and 3 are correct. Under the Mayaram Committee recommendations, foreign investments like FCCBs, GDRs, and FII/FPI investments that exceed 10% in a listed company under certain conditions are categorized as Foreign Direct Investments (FDI). Statement 4 is incorrect because Non-Resident External (NRE) deposits are classified under capital receipts/banking capital in the Balance of Payments, not as FDI. > Foreign debt and portfolio investments meeting threshold and conversion conditions constitute FDI, while debt deposits remain separate capital account flows. Answer: (a).
Question details
Year
2021
Paper
GS Paper 1
Question
Q7
Subject
Economy
Sub-topic
External Sector & Trade
Type
Statement-based
Difficulty
Hard
Nature
Static
Source hint
RBI Balance of Payments Manual / FDI Policy
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