Economics · Economy
The Government of India's policy regarding Foreign Investment involves a nuanced approach, primarily categorizing it into Foreign Direct Investment (FDI) and Foreign Portfolio Investment (FPI). From the perspective of economic stability and long-term development, which of the following characteristics makes FDI generally preferred over FPI by Indian policymakers?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1FDI is highly liquid and can be quickly withdrawn during global market turmoil, providing short-term exchange rate stability.
- 2FDI typically takes the form of investment in financial assets like listed bonds and equities, offering higher returns to the host country.
- 3FDI represents a stable, non-debt creating capital inflow that often brings technology transfer, management skills, and capacity building to the host country.✓
- 4FDI is strictly restricted to the Automatic Route and is completely exempt from the Securities and Exchange Board of India (SEBI) regulatory oversight.
Correct answer
FDI represents a stable, non-debt creating capital inflow that often brings technology transfer, management skills, and capacity building to the host country.
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