UPSC Indian Economy – Chapter 21: Foreign Investment – FDI and FPI (23 MCQs)
UPSC Indian Economy – Chapter 21: Foreign Investment – FDI and FPI (23 MCQs) – 23 questions, subject: Indian Economy. Every question has the correct answer with a one-line explanation; tap "Show Answer". Free practice for TNPSC, UPSC, SSC, Bank and RRB exams – Shanmugam IAS Academy, Coimbatore.
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In India, a foreign investment in a listed company is classified as FDI if it is:
Correct Answer: A [10 per cent or more of post-issue paid-up equity]
Explanation:
Indian FDI policy treats a holding of 10 per cent or more of post-issue paid-up equity of a listed company as FDI.
The committee that recommended the 10 per cent threshold between FDI and FPI was headed by:
Correct Answer: A [Arvind Mayaram]
Explanation:
2014.
Which of the following is NOT a feature of FDI?
Correct Answer: B [Fixed interest payments to the investor]
Explanation:
that is debt.
The Foreign Investment Promotion Board was abolished in:
Correct Answer: D [2017]
Explanation:
The Cabinet abolished the FIPB in 2017; proposals now go to ministries through the Foreign Investment Facilitation Portal.
FDI in the inventory model of e-commerce in India is:
Correct Answer: B [not permitted]
Explanation:
FDI is not allowed in the inventory model, where the e-commerce firm owns and sells its own goods.
Under the 2020 rules, FDI in defence manufacturing is allowed under the automatic route up to:
Correct Answer: B [74 per cent]
Explanation:
The 2020 change raised the automatic-route limit in defence manufacturing from 49 to 74 per cent; beyond that needs government approval.
Which of the following are prohibited sectors for FDI in India?
1. Lottery business
2. Chit funds
3. Telecom services
Select the correct answer:
Correct Answer: C [1 and 2 only]
Explanation:
Lottery business and chit funds are on the prohibited list, while telecom services allow 100 per cent FDI.
Foreign direct investment in print media dealing with news and current affairs is allowed up to:
Correct Answer: D [26 per cent under the government route]
Explanation:
News and current-affairs print media may take 26 per cent FDI, only with government approval.
The largest source of FDI equity inflows into India in 2025-26 was:
Correct Answer: D [Singapore]
Explanation:
34%.
The sector receiving the largest share of FDI equity inflows in 2025-26 was:
Correct Answer: B [computer software and hardware]
Explanation:
24%.
Assertion (A): Net FDI in India's balance of payments was far smaller than gross FDI equity inflows in 2025-26.
Reason (R): Repatriation by foreign investors and outward FDI by Indian firms are deducted to arrive at net FDI.
Correct Answer: A [Both A and R are true, and R is the correct explanation of A]
Explanation:
Both are true, and deducting repatriation and outward FDI is exactly why net FDI was far below gross inflows.
Foreign portfolio investors in India register with:
Correct Answer: C [SEBI]
Explanation:
Foreign portfolio investors are registered and regulated by SEBI under its FPI Regulations, 2019.
Which of the following are generally NOT foreign investment but debt or banking flows?
1. External commercial borrowings
2. NRI deposits
3. Reinvested earnings of foreign companies
Select the correct answer:
Correct Answer: D [1 and 2 only]
Explanation:
External commercial borrowings are debt and NRI deposits are banking capital, while reinvested earnings form part of FDI.
Arrange the following in chronological order:
1. Press Note 3 on land-border countries
2. Abolition of FIPB
3. Model Bilateral Investment Treaty
4. 100% FDI in insurance
Select the correct answer:
Correct Answer: C [3-2-1-4]
Explanation:
2015, 2017, 2020, 2025.
The India–Mauritius tax treaty was amended in 2016 mainly to:
Correct Answer: C [tax capital gains at source and curb round-tripping]
Explanation:
The 2016 protocol let India tax capital gains on Indian shares at source, curbing round-tripping through Mauritius.
The law that withdrew retrospective tax demands on indirect transfers was the:
Correct Answer: D [Taxation Laws (Amendment) Act, 2021]
Explanation:
The Taxation Laws (Amendment) Act, 2021 withdrew retrospective demands on indirect transfers made under the 2012 amendment.
In March 2026 the easing of Press Note 3 allowed the automatic route for investing entities in which beneficial owners from land-border countries hold a non-controlling stake of up to:
Correct Answer: D [10 per cent]
Explanation:
The March 2026 easing allows the automatic route where land-border beneficial ownership is non-controlling and up to 10 per cent.
The single-brand retail sector in India allows FDI of:
Correct Answer: A [100 per cent under the automatic route]
Explanation:
Single-brand product retail trading is open to 100 per cent FDI under the automatic route.
Which body issues India's consolidated FDI policy?
Correct Answer: C [DPIIT]
Explanation:
DPIIT, under the Ministry of Commerce and Industry, frames and issues the consolidated FDI policy.
The Foreign Exchange Management Act, 1999 replaced the:
Correct Answer: A [Foreign Exchange Regulation Act, 1973]
Explanation:
FEMA came into force on 1 June 2000.
With reference to foreign-owned e-commerce firms operating in India, which of the following statements is/are correct?
1. They can sell their own goods in addition to offering their platforms as market-places.
2. The degree to which they can own big sellers on their platforms is limited.
Select the correct answer using the code given below:
Correct Answer: D [Neither 1 nor 2]
Explanation:
statement 1 is wrong because the inventory model is barred, and statement 2 is wrong because equity-linked sellers are barred outright.
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?
Correct Answer: A [1, 2 and 3]
Explanation:
FCCBs, GDRs and foreign institutional investment meeting conditions can count as FDI, but NRE deposits are banking capital.
With reference to Foreign Direct Investment in India, which one of the following is considered its major characteristic?
Correct Answer: B [It is largely non-debt, creating capital flow.]
Explanation:
FDI investors share profits and losses instead of claiming fixed interest, so it is largely a non-debt-creating capital flow.
➤ Full notes, maps, tables, a reason for every option and Mains PYQs – U15 · Indian Economy (UPSC book, ₹249): www.shanmugamiasacademy.in/study-materials/upsc-indian-economy
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