Civil Services Prep

Prelims 2012 · Economy · Question 78

Which of the following would include Foreign Direct Investment in India?

  1. Subsidiaries of foreign companies in India.
  2. Majority foreign equity holding in Indian companies.
  3. Companies exclusively financed by foreign companies.
  4. Portfolio investment.

Select the correct answer using the codes given below:

  1. 1, 2, 3 and 4
  2. 2 and 4 only
  3. 1 and 3 only
  4. 1, 2 and 3 only

Answer

1, 2 and 3 only

1. Subsidiaries of foreign companies in India — A foreign company setting up/owning a subsidiary in India is a classic case of FDI, as it involves lasting interest and control. Correct.

2. Majority foreign equity holding in Indian companies — If foreign investors hold a controlling/majority stake, it reflects direct investment, not mere trading in securities. Correct.

3. Companies exclusively financed by foreign companies — Where the investment comes directly from foreign companies to establish/finance an enterprise in India, it falls under FDI. Correct.

4. Portfolio investment — Portfolio investment is FPI/FII, involving passive investment in securities without management control; it is not FDI. Incorrect.

Hence, 1, 2 and 3 only are included in Foreign Direct Investment.

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