UPSC Prelims Practice Questions — Calibrating India’s inbound investment framework

Q1. With reference to the classification of foreign investment in India, consider the following statements: Which of the statements given above is/are correct?

  1. A non-resident's equity holding in an unlisted Indian company is classified as foreign portfolio investment if it is below 10% of the company's paid-up capital.
  2. Equity investment by foreign portfolio investors is treated as a debt-creating capital inflow because it can be withdrawn at short notice.
  3. In the RBI's foreign investment statistics, portfolio investment into India includes flows through GDRs/ADRs in addition to investment by FPIs.
  • A. 2 and 3 only
  • B. 3 only
  • C. 1 and 3 only
  • D. 1 only

Q2. Consider the following statements: Which of the following is correct in respect of the above statements?

  1. A 6% equity stake acquired by a foreign multinational in a listed Indian company operating in its own line of business is classified as foreign portfolio investment.
  2. Under India's framework, FDI and FPI are distinguished by whether the foreign investor obtained prior Government approval for the investment.
  • A. Both Statement-I and Statement-II are correct and Statement-II explains Statement-I
  • B. Both Statement-I and Statement-II are correct, but Statement-II does not explain Statement-I
  • C. Statement-I is correct, but Statement-II is incorrect
  • D. Statement-I is incorrect, but Statement-II is correct

Q3. Consider the following statements: Which of the following is correct in respect of the above statements?

  1. Foreign direct investment in atomic energy is not permitted in India even through the Government route.
  2. A few sectors of strategic importance are kept outside the automatic route, so that foreign investment in them requires prior Government approval.
  • A. Both Statement-I and Statement-II are correct and Statement-II explains Statement-I
  • B. Both Statement-I and Statement-II are correct, but Statement-II does not explain Statement-I
  • C. Statement-I is correct, but Statement-II is incorrect
  • D. Statement-I is incorrect, but Statement-II is correct

Q4. Consider the following investments by foreign companies in India: Which of the above would be classified as greenfield investment?

  1. A foreign firm acquires a majority stake in an existing Indian cement company to enter a new market.
  2. A foreign firm builds a data centre on vacant land it has bought in India.
  3. The Indian subsidiary of a foreign firm reinvests its retained profits to add a new production line within its existing plant.
  4. A foreign firm sets up a wholly owned Indian subsidiary that constructs a manufacturing plant from scratch.
  • A. 1 and 3 only
  • B. 1, 2 and 4 only
  • C. 2 and 4 only
  • D. 2, 3 and 4 only

Q5. With reference to the legal and policy framework for foreign investment in India, consider the following statements: Which of the statements given above is/are correct?

  1. The rules specifying the instruments in which a person resident outside India may invest are framed under the Foreign Exchange Management Act, 1999.
  2. Once a sectoral FDI cap is fixed, it can be altered only by Parliament amending the Foreign Exchange Management Act itself.
  3. Policy can tie a sector's automatic-route limit to the purpose of the investment, as in defence, where the 74% automatic-route limit applies only to companies seeking new industrial licences.
  • A. 2 and 3 only
  • B. 1 only
  • C. 1, 2 and 3
  • D. 1 and 3 only

Q6. With reference to the World Investment Report, in which India was ranked 11th among FDI destinations in 2026, consider the following statements: Which of the statements given above is/are NOT correct?

  1. The report is published by the World Bank as a companion to its assessments of national business regulation.
  2. A 44% rise in a country's FDI inflows necessarily means a 44% rise in the number of greenfield projects announced in that country.
  3. A country's rank in the report's list of top FDI destinations measures the cumulative stock of FDI it has received since it liberalised its economy.
  • A. 1, 2 and 3
  • B. 1 and 2 only
  • C. 2 and 3 only
  • D. 1 and 3 only