Consider the following:Foreign currency convertible bondsForeign institutional investment with certa

Q: What is UPSC Prelims?

UPSC Prelims is a competitive examination conducted in India. This question is from the 2021 UPSC Prelims Economy paper.

Q: How can I prepare for UPSC Prelims Economy?

To prepare for UPSC Prelims Economy, practice previous year questions (PYQs), understand concepts thoroughly, and solve mock tests regularly. This 2021 question covers Foreign Exchange & Currency Management topic.

Q: What is the difficulty level of this question?

This UPSC Prelims 2021 Economy question has a medium difficulty level and is marked as an important question.

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You can find more UPSC Prelims previous year questions on AspirantMitraa. Browse by subject, topic, year, and difficulty level to practice effectively.

Question

Consider the following:Foreign currency convertible bondsForeign institutional investment with certain conditionsGlobal depository receiptsNon-resident external depositsWhich of the above can be included in Foreign Direct Investments?

Accepted Answer

Correct Answer: A — 1, 2 and 3Step-by-step Solution:Items that can be included in FDI: Foreign Currency Convertible Bonds (FCCBs), Foreign Institutional Investment with certain conditions (subject to overall 24% limit), and Global Depository Receipts (GDRs) are instruments that bring equity flow into the country and are classified under FDI when the investor obtains a stake in the management or meets prescribed conditions. ✓Item 4 — Non-resident external deposits: These are debt-creating flows (liabilities) in the balance of payments and are not considered FDI. They fall under external commercial borrowings or NRI deposits. ✗Why other options are incorrect:Option B (3 only): Incorrect because FCCBs and FII with conditions are also included.Option C (2 and 4): Incorrect because NRE deposits are not FDI.Option D (1 and 4): Incorrect because NRE deposits are not FDI, and FII with conditions (which is included) is missing.Key Concept: Foreign Direct Investment (FDI) implies a lasting interest and control by an investor in an enterprise resident in another economy. Equity instruments like FCCBs (convertible into equity), GDRs (listed abroad), and certain FII investments (with conditions like lock-in, management control) are treated as FDI. Debt instruments (NRE deposits, commercial borrowings) are not FDI.

Consider the following:Foreign currency convertible bondsForeign institutional investment with certain conditionsGlobal depository receiptsNon-resident external depositsWhich of the above can be included in Foreign Direct Investments?

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Consider the following:Foreign currency convertible bondsForeign institutional investment with certain conditionsGlobal depository receiptsNon-resident external depositsWhich of the above can be included in Foreign Direct Investments?

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