Correct Option (d)
Foreign Direct Investment (FDI) involves an investment made by a foreign entity into a domestic company or economy, with the primary objective of establishing a lasting interest and exercising significant control or influence over the management of the enterprise. It typically entails equity participation, reinvestment of earnings, or other capital transfers.
- Statement 1: Subsidiaries of foreign companies in India represent a direct form of FDI, as the foreign parent company holds complete or majority ownership and control over the Indian entity.
- Statement 2: Majority foreign equity holding in Indian companies signifies substantial ownership and control, which is a defining characteristic of FDI.
- Statement 3: Companies exclusively financed by foreign companies inherently involve significant foreign capital and control, thus qualifying as FDI.
- Statement 4: Portfolio investment involves the purchase of financial assets like stocks and bonds without the intention of gaining significant control over the company. It is primarily driven by short-term financial gains and is classified as Foreign Portfolio Investment (FPI) or Foreign Institutional Investment (FII), which is distinct from FDI.
Therefore, statements 1, 2, and 3 accurately describe components of Foreign Direct Investment, while statement 4 does not.
Incorrect Options
- Options (a) and (b) are incorrect because they include statement 4 (Portfolio investment), which is not a component of Foreign Direct Investment.
- Option (c) is incorrect because it excludes statement 2 (Majority foreign equity holding in Indian companies), which is a clear form of FDI.