UPSC CIVIL SERVICES EXAMINATION

PRELIMS 2019 SPECIAL

LECTURE 8

MCQs – STATIC – ECONOMY

www.civilstap.com

FOREIGN INVESTMENT IN INDIA

www.civilstap.com

FOREIGN DIRECT INVESTMENT

www.civilstap.com

Foreign direct investment (FDI) is when a foreign company or individual makes an investment in India thatinvolves either :

1

establishing new business operations - known as green-field FDI or1.1

Inward FDI is when foreign companies or individuals invest in India.2

acquiring business assets, including controlling interests, in an already existing Indian company - known as brown-field FDI

1.2

Outward FDI is when Indian companies or individuals invest in foreign countries3

As per the Companies Act 2013, if a foreign investor owns more than 10 % shares in a listed company, it will betreated as FDI

4

FOREIGN PORTFOLIO INVESTMENT

www.civilstap.com

www.civilstap.com

Arvind Mayaram Committee had recommended the merger of the FII and Qualified Foreign Investors (QFI)regimes under the new “Foreign Portfolio Investors” (FPI) regime.

1

In the Indian context, FIIs (along with sub-accounts with FIIs) and QFIs can be collectively classified as ForeignPortfolio Investment (FPI).

2

FOREIGN PORTFOLIO INVESTMENT

Investment by any single investor or investor group under FPI cannot exceed 10% of the equity of an Indiancompany, beyond which it will now be treated as FDI.

3

FOREIGN INSTITUTIONAL INVESTMENT

www.civilstap.com

FII is when foreign institutional investors invest in the shares of an Indian company, or in bonds offered by anIndian company.

1

Only institutional investors like Investment companies, Insurance funds etc. were allowed to invest in Indianstock market directly. Hence the term foreign institutional investor. These investors have to get a license fromSEBI.

2

However, if foreign individuals wanted to invest in India’s markets, they had to get themselves registered as asub-account of an FII. The FII used to buy shares/ bonds from the India markets on their behalf.

3

FIIs, have now been merged into Foreign Portfolio Investors (FPI), when the FPI regulations were introduced in2014.

4

QUALIFIED FOREIGN INVESTMENT

www.civilstap.com

Foreign individuals could not invest directly in India’s markets without sub-accounts with an FII.1

QFI is sub-category of Foreign Portfolio Investor and refers to any foreign individuals, groups or associations, orresident, however, restricted to those from a country that is a member of Financial Action Task Force (FATF) or acountry that is a member of a group which is a member of FATF and a country that is a signatory to InternationalOrganization of Securities Commission’s (IOSCO) Multilateral Memorandum of Understanding (MMOU).

2

QFIs, have now been merged into Foreign Portfolio Investors (FPI), when the FPI regulations were introduced in 2014.

3

BUT NOW IT IS LIKE THIS

www.civilstap.com

FDI vs FPI

www.civilstap.com

FDI FPI

Q. Consider the following statements:

1) FDI is considered more stable investment as compared to FII

2) One can obtain control of a company by investing via FPI route in India

Which of the above statements are correct?

a) 1 only

b) 2 only

c) Both 1 and 2

d) Neither 1 or 2

Answer : a

QUESTION 1

www.civilstap.com

As per the Companies Act 2013, if a foreign investor owns more than 10 % shares in a listed

company, it will be treated as?

a) Foreign Direct Investment

b) Foreign Portfolio Investment

c) Foreign Institutional Investment

d) Both b and c

Answer : a

QUESTION 2

www.civilstap.com

Which of the following routes of investment have now been clubbed together under Foreign

Portfolio Investment?

1) FDI

2) FII

3) QFI

4) FVCI

Select the correct code:

a) 1 and 3 only

b) 2 and 3 only

c) 1,2 and 3 only

d) All of the above

Answer : b

QUESTION 3

www.civilstap.com

Consider the following statements:

1) FDI route always offers higher return than FII route on investment

2) FII is termed as “hot money”.

Which of the above is/are incorrect?

a) 1 Only

b) 2 Only

c) All of the above

d) None of the above

Answer : a

QUESTION 4

www.civilstap.com

Which of the following committee was constituted by the Government of India to rationalize

the definitions of FDI and FII?

a) S S Tarapore Committee

b) Arvind Mayaram Committee

c) Urjit Patel Committee

d) Saxena Committee

Answer : b

QUESTION 5

www.civilstap.com