Foreign Direct Investment inflows to India fell by USD 19 billion in 2021 to USD 45 billion, although the nation remained among the top ten global countries for FDI last year, according to the United Nations on Thursday.
According to the UNCTAD World Investment Report, flows of foreign direct investment rebounded to pre-pandemic levels last year, totaling approximately USD 1.6 trillion.
However, the outlook for this year is bleaker, as global FDI in 2022 and beyond will be impacted by the Ukraine war’s security and humanitarian issues, macroeconomic shocks generated by the conflict, energy and food price increases, and heightened investor uncertainty.
India, which got USD 64 billion in FDI in 2020, saw a drop in FDI inflows to USD 45 billion in 2021. However, India remained in the top ten countries for FDI inflows in 2021, ranking seventh after the United States, China, Hong Kong, Singapore, Canada, and Brazil. South Africa, Russia, and Mexico completed the top ten economies in terms of FDI inflows in 2021.
“Flows to India declined to USD 45 billion. However, a flurry of new international project finance deals were announced in the country: 108 projects, compared with 20 projects on average for the last 10 years,” the report said, adding that the largest number of 23 projects was in renewables.
Arcelormittal Nippon Steel (Japan) is building a steel and cement factory in India for USD 13.5 billion, while Suzuki Motor (Japan) is building a new vehicle manufacturing facility for USD 2.4 billion.
Outward FDI from South Asia, mostly from India, increased by 43% to USD 16 billion.
According to the paper, the Ukrainian conflict will have far-reaching implications for foreign investment in economic growth and the Sustainable Development Goals (SDGs) in all nations. It comes as a frail global economy begins an uneven rebound from the pandemic’s ravages.
According to the report, the war’s direct effects on investment flows to and from Russia and Ukraine include the halting of existing investment projects and the cancellation of announced projects, an exodus of multinational enterprises (MNEs) from Russia, widespread asset value declines, and sanctions that effectively prevent outflows.
According to the report, MNEs from China and India account for a tiny percentage of FDI stock in Russia (less than 1%), while having a greater part of current projects.
According to the research, despite several rounds of COVID-19, FDI in developing Asia increased for the third consecutive year to an all-time high of USD 619 billion, demonstrating the region’s resilience. It is the world’s biggest FDI recipient area, accounting for 40% of total inflows.
The growing trend in 2021 was largely shared across the area, with South Asia being the lone exception, where FDI inflows fell by 26% to USD 52 billion in 2021 from USD 71 billion in 2020 due to a lack of big M&As (mergers and acquisitions) in 2020.
Inflows remain extremely concentrated, with six economies accounting for more than 80% of FDI to the area (China, Hong Kong, Singapore, India, the United Arab Emirates, and Indonesia, in that order).
According to the research, worldwide project funding announcements in industrial real estate have been steadily increasing for many years, with no pause throughout the epidemic. In 2021, the number of deals increased to 152 projects for USD 135 billion. Large projects include the USD 14 billion building of a steel and cement production facility in India and the USD 10 billion development of a 960-hectare pharmaceutical park in Vietnam.
Furthermore, it said that more than 60% of greenfield investments are in developed economies, particularly in Europe (45 percent ). India accounts for about half of all research and development (R&D) initiatives in emerging economies.
In emerging countries, US MNEs targeted India in 8% of the transactions, largely through purchasing minority holdings to get access to the market and local creative solutions.
For example, in 2017, eBay (United States), Microsoft (United States), and Tencent (China) paid $1.4 billion for an undisclosed minority share in online retailer Flipkart (India). Similarly, Paypal (United States) bought undisclosed minority shares in a variety of Indian enterprises, including software suppliers, online brokerage platforms, professional services, and electronic payments (Moshpit Technologies, Speckle Internet Solutions, Scalend Technologies, Freecharge Payment Technologies).
It went on to say that four Chinese corporations accounted for 11% of the acquisitions and spent a larger proportion (34%) in developing-economy MNEs than their developed counterparts. “They invested especially in Asia, with shares divided equally between India and South-East Asia,” the report said.
According to the research, investment facilitation measures implemented by countries accounted for over 40% of all measures more favorable to investment. Many new initiatives aimed at streamlining administrative processes for investment.
For example, India developed the National Single-Window System, which would serve as a one-stop shop for investors, entrepreneurs, and enterprises seeking permissions and clearances.