Foreign capital can be acquired either in the form of concessional support or non - concessional flows or foreign investment. Concessional assistance comprises of grants & loans obtained at low rates of interest together with long maturity period. Such assistance is provided usually on bilateral basis, government to government or through multi-lateral agencies like International Development Association, World Bank etc. Non-concessional assistance comprises chiefly external commercial borrowings or loans from other agencies on market terms and deposits obtained from non - residents.
Need for Foreign Capital
1. Sustaining a high level of investment.
2. The technological gap.
3. Misuse of natural resources.
4. Undertaking the initial risk
5. Expansion of basic economic infrastructure.
6. Upgrading in the balance of payments position
Indian Government’s Policy towards Foreign Capital
1. No favoritism between foreign & Indian capital.
2. Full opportunities to earn profits
3. Guarantee of compensation
Sectors in which Foreign Direct Investment is prohibited are:
1. Multi Brand Retail
2. Atomic energy
3. Lottery business
4. Gambling & betting
5. Business of chit fund
6. Nidhi company
7. Trading in transferable development rights
8. Activity / Sector not opened to private sector investment