In 2020 Foreign Direct Investment, India received $64 billion, the fifth largest recipient of the inflows in the world.
According to a UN report which said that the country’s strong fundamentals provide optimism for the medium term even though the COVID-19 second wave weighed heavily on the overall economic activities.
On Monday, UN conference on Trade and Development released the World Investment Report 2021, it said that the global FDI flows had been hit severely by the pandemic and it crashed by 35 per cent in 2020.
The report mentioned in India that the FDI had increased 27 per cent to $64 billion in 2020 from $51 billion in 2019, which made the country the fifth largest FDI recipient in the world. As the pandemic boosted demand for digital infrastructure and services globally, it led to higher value of the greenfield FDI project announcements targeting the ICT industry, rising to $81 billion by 22 per cent. One of the major announcements in the ICT industry was the $2.8 billion investment by online retail giant, Amazon, in the ICT infrastructure in India.
The report announced that the greenfield projects in India contracted by 19 per cent to $24 billion and the second wave could lead to a larger contraction in 2021, the outbreak of COVID-19 severely hit the main investment destinations like Maharashtra and Karnataka.
India’s strong fundamentals provide optimism for the medium term. The report said that FDI to India has been a long term growth trend and the size of the market will continue to attract market-seeking investments, addition to which, the investment into the ICT industry has been expected to keep growing.
Government facilitation could help in the country’s export related manufacturing which might take longer to recover. The Production Linkage Incentive Scheme of India has been designed to attract the manufacturing and export oriented investments in priority industries. The report said that the FDI rose by 20 percent in South Asia to $71 billion.
The large transactions included the acquisition of Jio Platforms by Jaadhu, a subsidiary of Facebook for $5.7 billion, the acquisition of Tower Infrastructure Trust by Canada’s Brookfield Infrastructure for $3.7 billion and GIC and the sale of electrical and automation division of Larsen and Toubro in India for $2.1 billion. The report said that the megadeal Unilever India’s merger with GlaxoSmithKline Consumer Health Care India for $4.6 billion, had also contributed.
The FDI outflows fell 12 per cent from South Asia to $12 billion. Whereas India ranked 18 out of the world’s 20 economies for FDI outflows.
The investments from India had been expected to stabilise in 2021, supported by the resumption of FTA talks with the European Union and its strong investment in Africa. The report warned that the recent second wave of COVID-19 in India showed significant uncertainties, even though the health crises was managed relatively well.
The report also said that it has major impacts on the prospects for South Asia, the global FDI in 2021 could get significantly lowered by a resurgence of the virus in Asia. The FDI inflows grew by 4 per cent in the developing Asia, and made it the only region to record growth and increased Asia’s share of global inflows to over 54 per cent. In China, it had increased by 6 per cent to $149 billion.
The report added that the FDI inflows in Asia were expected to increase in the year 2021, while outperforming the other developing regions with a 5 to 10 per cent projected growth.
A report said that the signs of trade and industrial production recovering in the second half of 2020 provided a strong foundation for FDI growth in the year 2021, yet the downside risk remains for many economies where the fiscal capacity for recovery spending is limited and there is a struggle to contain the successive waves of COVID-19. It also said that the economy in East and South-East Asia and India would continue to attract the foreign investment in high tech industries.
