Which Act governs foreign exchange transactions, including foreign investment, in India today?

The correct answer is B. Foreign direct investment is made to acquire a lasting interest in an enterprise abroad, conventionally measured as ten per cent or more of the voting power, and with it comes a say in how the company is run; portfolio investment buys shares and bonds without any such control. Option A is wrong because the investor in FDI is usually a company, and governments are only one kind of investor. Option C is wrong because both FDI and FPI are recorded in the capital or financial account of the balance of payments, not the current account, which records trade and income. Option D is wrong because it describes portfolio investment, the hot money that can leave on a single trading day, while direct investment sits in plant and machinery and cannot be reversed quickly.

The correct answer is C, the Department for Promotion of Industry and Internal Trade, a department of the Ministry of Commerce and Industry, which was known as the Department of Industrial Policy and Promotion until it was renamed in 2019. Option A is wrong because the Reserve Bank of India administers the exchange side under FEMA and receives the reporting of inflows, but it does not frame the sectoral policy. Option B is wrong because the Securities and Exchange Board of India regulates portfolio investors and the securities market. Option D is wrong because the Ministry of Finance deals with taxation, the budget and financial sector legislation, while the sectoral caps and routes for direct investment come from the commerce ministry's department. The circular is reissued from time to time with the caps and routes for every sector, so an aspirant should read the latest one rather than an old table of percentages.

The correct answer is C, 2017. The Foreign Investment Promotion Board was wound up and its work handed to the administrative ministries concerned, which now receive applications through the Foreign Investment Facilitation Portal. Option A is wrong because 2014 is the year the Securities and Exchange Board of India created the single class of foreign portfolio investors by merging foreign institutional investors, their sub-accounts and qualified foreign investors. Option B is wrong because 2015 is remembered in this chapter for the Make in India campaign gathering pace rather than for the Board. Option D is wrong because 2019 is the year the Department of Industrial Policy and Promotion was renamed the Department for Promotion of Industry and Internal Trade, a change of name that often appears in the same set of questions.

The correct answer is C. Under the automatic route the foreign investor needs no prior permission from either the government or the Reserve Bank of India; the Indian company simply reports the inflow and the issue of shares to the Reserve Bank within the prescribed time. Options A and B are wrong because prior approval is the feature of the other route, the government or approval route, where the application goes to the administrative ministry concerned through the Foreign Investment Facilitation Portal. Option D is wrong because the automatic route carries no single cap: the cap depends on the sector, and in a great many sectors the whole of the equity is open under this route, while a few sectors carry a lower cap or require approval beyond it.

The correct answer is B, the lottery business. The FDI policy lists a small set of prohibited activities: the lottery business, gambling and betting including casinos, chit funds, Nidhi companies, trading in transferable development rights, real estate business and the construction of farm houses, the manufacture of cigars, cheroots and cigarettes, and activities closed to private investment such as atomic energy and railway operations. Options A, C and D are wrong because insurance, telecom services and single brand retail trading are all open to foreign investment, each with a cap and a route set out in the policy circular, and those caps have been raised over the years. The trap in this question is that the permitted sectors are the ones most often in the news.