Consider the following: 1. Foreign currency convertible bonds 2. Foreign institutional investment with certain conditions 3. Global depository receipts 4. Non-resident external deposits Which of the above can be included in Foreign Direct Investments?
- A. 1, 2 and 3
- B. 3 only IA
- C. 2 and 4
- D. 1 and 4
Answer: A
Explanation
In Capital Account of Balance of Payment, we can classify into Investment, Borrowings and External Assistance. Investment includes Equity flow in the economy. Foreign Currency Convertible Bonds (FCCB), Foreign Institutional Investment with certain conditions (subject to the overall limit of 24%), and Global Depository Receipts (GDR) are the instruments for the foreign investment in India. Hence options 1, 2 and 3 are correct. Non-Resident external deposits are a ‘debt creating’ flow in balance of payments accounts and therefore, not part of Foreign Direct investments. Hence options 4 is not correct.