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27-06-2021 | Asia

India receives $64 billion foreign direct investment in 2020, fifth largest recipient of inflows in world: United Nations

India received $64 billion in foreign direct investment in 2020, making it the world's fifth largest recipient of inflows, according to a UN report which said the COVID-19 second wavein the country is weighing heavily on the country's overall economic activities, but its strong fundamentals provide hope for the medium term.

According to the UN Conference on Trade and Development's (UNCTAD) World Investment Report 2021, global FDI flows were badly damaged by the pandemic, falling by 35% in 2020 to $1 trillion from $1.5 trillion the year before.

COVID-19-related global lockdowns hindered existing investment projects, and the fear of a recession prompted multinational companies (MNEs) to reconsider new initiatives.

The report said in India, FDI increased by 27% to $64 billion in 2020 from $51 billion in 2019, boosted by acquisitions in the information and communication technology (ICT) industry, making the country the world's fifth largest FDI recipient.

As a result of the epidemic, global demand for digital infrastructure and services soared. Greenfield FDI project announcements targeting the ICT industry increased by more than 22% to $81 billion as a result of this.

Among the major project announcements in the ICT industry was Amazon's $2.8 billion investment in India's ICT infrastructure.

The second wave of the COVID-19 outbreak in India, according to the research, is having a significant impact on the country's total economic operations.

Announced greenfield projects in India fell by 19% to $24 billion, and the second wave in April 2021 is affecting economic activities, potentially leading to a larger contraction in 2021, it said, adding that the outbreak in India severely impacted major investment destinations such as Maharashtra, which is home to one of the largest automotive manufacturing clusters (MumbaiPuneNasikAurangaba).

India's strong fundamentals, on the other hand, give reason for confidence in the medium run. India's FDI has been rising rapidly for a long time, and the country's market size will continue to attract investors. In addition, the report predicts that investment in the ICT industry will continue to rise.

Export-related manufacturing, which is a priority investment sector for the country, will take longer to recover, but government assistance can help. India's Production Linkage Incentive plan, which aims to encourage manufacturing and export-oriented investments in key industries such as automotive and electronics, has the potential to boost manufacturing investment.

The report said, FDI into South Asia increased by 20% to $71 billion, owing to significant M&A activity in India. In the midst of India's battle to contain the COVID-19 outbreak, robust investment in ICT (software and hardware) and construction boosted FDI, according to the report, which also stated that cross-border mergers and acquisitions increased by 83 percent to $27 billion, with major deals involving ICT, health, infrastructure, and energy.

Large transactions included the $5.7 billion purchase of Jio Platforms by Jaadhu, a Facebook subsidiary, the $3.7 billion purchase of Tower Infrastructure Trust by Brookfield Infrastructure and GIC (Singapore), and the $2.1 billion sale of Larsen & Toubro India's electrical and automation division. Unilever India's $4.6 billion merger with GlaxoSmithKline Consumer Healthcare India (a subsidiary of GSK United Kingdom) was also a factor, according to the report.

South Asia's FDI outflows declined 12% to $12 billion, owing to a drop in investment from India. India placed 18th out of the top 20 nations in terms of FDI outflows in 2020, with 12 billion dollars in outflows compared to 13 billion dollars in 2019.

India's investments are projected to stabilise in 2021, owing to the country's resumption of free trade agreement (FTA) talks with the European Union (EU) and its significant investment in Africa, the report said.

While the Asian area has managed the health issue pretty well, the research warns that considerable risks persist, as evidenced by the recent second wave of COVID-19 in India.

This has a significant impact on South Asia's prospects. Given Asia's major contribution to global FDI, a wider return of the virus could drastically lower global FDI in 2021, according to the analysis.

Inflows of foreign direct investment into developing Asia increased by 4% to $535 billion in 2020, making it the only region to see growth and boosting Asia's share of global inflows to 54%. FDI into China climbed by 6% to $149 billion.

While some of the largest economies in emerging Asia, such as China and India, had an increase in FDI in 2020, the remainder saw a decrease, according to the report.

According to the analysis, FDI inflows to Asia are likely to climb in 2021, exceeding other developing areas by 510 percent.

In the second half of 2020, signs of trade and industrial output recovery create a good platform for FDI growth in 2021. However, since they struggle to contain successive waves of COVID-19 cases and have little financial capacity for recovery investment, many economies in the region continue to face considerable downside risks.Given their market size and strong digital and technology ecosystems, economies in East and Southeast Asia, as well as India, will continue to draw foreign investment in high-tech businesses, according to the report.

The report added that FDI inflows to Asia are likely to climb in 2021, exceeding other developing areas by 510 percent.

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