With reference to Foreign Direct Investment in India,which one of the following is considered its major characteristic?

1. A

   It is the investment through capital instruments essentially in a listed

   Capital instruments in a listed company. That is closer to FPI/portfolio, not the FDI hallmark.

2. B

   A debt flow is a type of foreign capital where there is obligation for the residents to repay it. A non-debt flow is the one where there is no direct repayment obligation for the residents. For example, in the case of FDI, there is not debt payment obligation. On the other hand, in the case of External Commercial Borrowings that is a loan taken by residents from abroad, the loan is to be repaid and this is a debt flow. When the capital inflow is a debt flow like External Commercial Borrowings or NRI deposits, it means debt payment obligation for the country. FDI and Depository Receipts are non-debt flows. These inflows don’t create any repayment burden. On the other hand, ECBs, FCCBs, Rupee Denominated Bonds, NRI deposits and banking capital are debt creating flows

   A largely non-debt creating capital flow. Equity control; no scheduled repayment like an ECB.

3. C

   It is non-debt creating. So, it doesn’t involve debt servicing

   Involves debt-servicing. That is ECB/NRI deposits, not FDI.

4. D

   FDI is not restricted to government securities. Therefore, the correct answer is (b)

   Investment in government securities. That is FPI in gilts.

Summary. Official key is (b). FDI’s major characteristic here is that it is largely non-debt creating — unlike ECBs or NRI deposits. It is not essentially listed-stock buying or G-sec investment.