UPSC Prelims 2021 · Question 7 of 97
UPSC Prelims 2021 question on Capital Account Items
- ExamUPSC CSE
- Year2021
- PaperGeneral Studies Paper I
- SubjectIndian Economy
- TopicExternal Sector of India
- DifficultyHard
- TypeStatement
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?
Show answer
Answer: A. 1, 2 and 3
Verdict
Correct statements: 1, 2 and 3 → Option (a).
Analysis
In the Capital Account of Balance of Payment, items can be classified into Investment, Borrowings and External Assistance. Investment includes equity flows into the economy.
Statement by statement
Statement 1 — CORRECT: Foreign Currency Convertible Bonds (FCCB) are instruments for foreign investment in India and are part of FDI.
Statement 2 — CORRECT: Foreign Institutional Investment (subject to the overall limit of 24%) is included under FDI as per the question's framing.
Statement 3 — CORRECT: Global Depository Receipts (GDR) are instruments for foreign investment in India and are part of FDI.
Statement 4 — INCORRECT: Non-Resident External (NRE) deposits are 'debt creating' flows in the balance of payments and are NOT part of Foreign Direct Investments.