Economics · External Sector and Investment
Which of the following best captures a core structural distinction between Foreign Direct Investment (FDI) and Foreign Portfolio Investment (FPI) and its significance for India's macroeconomic stability?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1FDI involves speculative investments in secondary stock markets, while FPI creates long-term primary industrial infrastructure.
- 2FPI includes direct management control and decision-making power in firms, while FDI is restricted to passive holdings without ownership.
- 3FDI implies long-term ownership and management interest in an enterprise, while FPI comprises liquid, short-term capital flows without control, making the latter more volatile.✓
- 4FDI and FPI are both governed solely by the Securities and Exchange Board of India (SEBI) and hence have identical macroeconomic impacts.
Correct answer
FDI implies long-term ownership and management interest in an enterprise, while FPI comprises liquid, short-term capital flows without control, making the latter more volatile.
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