TYPES OF FOREIGN CAPITAL

 TYPES OF FOREIGN CAPITAL

The term 'foreign capital' is a comprehensive one and includes any inflow of capital into the home country from abroad and therefore, we need to be clear about the distinction between movement of capital and foreign investment. Foreign capital may flow into an economy in different ways. Some of the important components of foreign capital flows are:

1. Foreign aid or assistance which may be:

(a) Bilateral or direct inter government grants

(b) Multilateral aid from many governments who pool funds to international organizations like the World Bank

(c) Tied aid with strict mandates regarding the use of money or untied aid where there are no such stipulations

(d) Foreign grants which are voluntary transfer of resources by governments, institutions, agencies or organizations

2. Borrowings which may take different forms such as:
(a) Direct inter government loans

(b) Loans from international institutions (e.g. world bank, IMF, ADB)

(c) Soft loans for e.g. from affiliates of World Bank such as IDA

(d) External commercial borrowing, and

(e) Trade credit facilities

3. Deposits from non-resident Indians (NRI)

4. Investments in the form of :

(i) Foreign portfolio investment (FPI) in bonds, stocks and securities, and

(ii) Foreign direct investment(FDI) in industrial, commercial and similar other enterprises