Q. With reference to the Foreign Direct Investment (FDI) in India, consider
1.The two primary routes for FDI in India are direct route and portfolio route.
2.Since the economic reforms in 1990s, FDI inflows have shown an upward trend.
3.FDI differs from Foreign Portfolio Investment (FPI) primarily in terms of level of control the investor exerts in the enterprise.
Which of the statements given above are correct?
Explanation –
Statement 1 is incorrect. Foreign Direct Investments (FDI) in India can be made under two routes—Automatic Route and Government Route. Under the Automatic Route, the foreign investor or the Indian company does not require any approval from the Government of India for the investment. Under the Government Route, prior approval of the Government of India, Ministry of Finance, Foreign Investment Promotion Board (FIPB) is required.
Statements 2 and 3 are correct. Since the economic reforms in 1990s, FDI inflows have shown an upward trend, increasing from $129 million in 1991 to $71 billion in 2022-23, which shows a jump of 550 times. According to the 2022 UNCTAD World Investment Report, India received the 3rd-highest FDI inflows into greenfield (new) projects. The last five years saw the highest FDI inflow in the year 2021- 22 at $85 billion.
The key difference between FDI and FPI is the level of control the investor exerts in the enterprise. FDI involves a substantial investment with a long-term perspective, giving the investor significant control over the company’s operations and management. In contrast, FPI involves passive investments in stocks, bonds, or other financial instruments, where the investor doesn’t seek control over the company’s operations.
Source: Forum IAS
