Which of the following would include Foreign Direct Investment in India? 1) Subsidiaries of companies in India 2) Majority foreign equity holding in Indian companies 3) Companies exclusively financed by foreign companies 4) Portfolio investment Select the correct answer using the codes given below:

The correct answer is D (1, 2 and 3 only). The core concept is the difference between FDI and portfolio investment. FDI means a foreign investor acquires a lasting interest and a degree of management control in an Indian enterprise. Portfolio investment is passive holding of securities, with no control.

• Statement 1 is correct. Subsidiaries of foreign companies in India are FDI, since the parent exercises control over them.
• Statement 2 is correct. A majority foreign equity holding gives the foreign investor control over the Indian company.
• Statement 3 is correct. A company financed exclusively by foreign companies is wholly foreign-owned, which is the strongest form of FDI.
• Statement 4 is wrong. Portfolio investment, such as buying shares in the stock market for returns with no management role, is FPI or FII, not FDI.

Mains link: FDI policy is now framed under FEMA (Non-debt Instruments) Rules, 2019, and the FDI threshold for listed companies is 10 per cent of paid-up equity, which is a change from the 2012 framing. Treat the concept of control as the constant.

Trap: Aspirants often pick A by treating all foreign money as FDI. Ask whether the investor gets lasting interest and control.