IBEF: June 22, 2021
According to a UN report, the FDI (Foreign Direct Investment) in India stood at US$ 64 billion in 2020, the fifth largest FDI inflow receiver globally. The report highlighted that the strong fundamentals offer confidence for the medium term growth in the economic recovery amid COVID-19 second wave challenges.
On Monday, the UN Conference on Trade and Development (UNCTAD) published The World Investment Report 2021 and stated that the global FDI flows stood at US$ 1 trillion in 2020, as compared to US$ 1.5 trillion in 2019.
New project investments and existing investments were moderated due to the restrictions imposed by COVID-19 pandemic.
The report indicated that FDI inflows in India increased by 27% to reach US$ 64 billion in 2020, as compared to US$ 51 billion in 2019, driven by acquisitions registered in the information and communication technology (ICT) industry and making the country the fifth largest FDI recipient globally.
The pandemic boosted the need for enhanced digital infrastructure and services globally, resulting to greater number and values of greenfield FDI projects focused on the ICT industry, registering an increase of > 22% to reach US$ 81 billion.
Key projects in the ICT industry comprised a US$ 2.8 billion investment by Amazon in Indian ICT infrastructure.
The report observed that the outbreak of the COVID-19 second wave impacted the economic activities in India.
Greenfield projects in India were valued at US$ 24 billion.
According to the report, India's robust fundamentals offer anticipation for medium term growth. FDI inflows in the country has followed a growth trend and is expected to expand further to attract investments. In addition, the ICT industry is also expected to attract more investments.
Government’s PLI (Production Linkage Incentive) scheme, is designed to boost production and export-oriented investments in priority industries including electronics and automotive and expected to drive investments in manufacturing sector.
According to the report, FDI in South Asia increased by 20% to US$ 71 billion, driven by robust M&As in India. FDI was driven by strong investment through acquisitions in ICT (software and hardware) and construction, amid all COVID-19 induced challenges. The report stated that cross-border M&As increased by 83% to US$ 27 billion, with key deals involving sectors such as energy, ICT, health, and infrastructure. Key M&A deals were acquisition of Tower Infrastructure Trust by Canada's Brookfield Infrastructure and GIC (Singapore) for US$ 3.7 billion, acquisition of Jio Platforms by Jaadhu for US$ 5.7 billion, the divestment of the electrical and automation division of Larsen & Toubro India for US$ 2.1 billion and merger of Unilever India with GlaxoSmithKline Consumer Healthcare India for US$ 4.6 billion.
FDI outflows from South Asia stood at US$ 12 billion. India ranked 18 out of the global top 20 economies for FDI outflows, with outflows of US$ 12 billion recorded in 2020, as compared to US$ 13 billion in 2019.
According to the report, in 2021, investments from India are expected to be stabilised, driven by the country's continuation of free trade agreement (FTA) discussions with the European Union (EU) and its robust investment in Africa.
FDI inflows to developing Asia increased by 4% to US$ 535 billion in 2020, the only region to register growth. This growth has also contributed to increase Asia's share of global inflows to 54%. In China, FDI increased by 6% to US$ 149 billion.
The report added that while some of the largest countries in developing Asia such as China and India registered growth in FDI inflows, the rest registered a contraction.
The report said, the FDI inflows in Asia are expected to expand in 2021, with a projected growth of 510% outperforming other developing regions.
In the second half of 2020, indications of recovery in trade and industrial production provided a strong basis for FDI growth in 2021. As per the report, countries in East and South-East Asia, and India, are expected to attract foreign investment in high-tech industries, considering their market size and their innovative digital and technology ecosystem.
Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.