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?
Answer & explanation
Answer: (a) 1, 2 and 3
India's FDI policy counts money raised through FCCBs and depository receipts (GDRs/ADRs) as FDI, and any foreign holding of 10 per cent or more in a listed company is FDI, so portfolio investment crossing that line is reclassified. NRE deposits are bank deposits, a debt flow, not investment in a company's capital.
- ✓ 1. The Consolidated FDI Policy states that inward remittances from issuing FCCBs are treated as FDI and counted towards FDI.
- ✓ 2. The 'certain conditions' is the 10 per cent test: a foreign holding of ten per cent or more of a listed Indian company's paid-up equity is defined as FDI, so an institutional investor crossing it is counted as FDI.
- ✓ 3. Depository receipts such as GDRs represent shares of the Indian company, and the policy counts DR proceeds as FDI.
- ✗ 4. Non-Resident External (NRE) deposits are rupee bank deposits of NRIs; they create a liability of the bank, not an equity stake in a company, so they are not FDI.
Remember · FDI = capital instruments in an unlisted company, or 10% or more of a listed one. FCCB and DR (ADR/GDR) proceeds count as FDI; NRI deposits do not.
Sources
- DPIIT, Consolidated FDI Policy Circular of 2020, para 2.1.16 (definition of FDI) ↗ “'FDI' or 'Foreign Direct Investment' means investment through capital instruments by a person resident outside India in an unlisted Indian company; or in ten per cent or more of the post issue paid-up equity capital on a fully diluted basis of a listed Indian company … The inward remittance received by the Indian company vide issuance of DRs and FCCBs are treated as FDI and counted towards FDI.”
Question and answer: UPSC's official GS Paper I (2021, Series A) — paper ↗ · answer key ↗. Explanation: Minimalist IAS, checked 30 Sept 2026 (how we verify). ·