India remains among top 10 investment destinations in 2021 despite falling FDI
United Nations:
The United Nations on Thursday said foreign direct investment (FDI) inflows into India declined by $19 billion to $45 billion in 2021, but the country still remains among the top 10 global economies for FDI.
According to the United Nations Conference on Trade and Development (UNCTAD) World Investment Report, FDI inflows hit pre-pandemic levels last year, reaching nearly $1.6 trillion.
However, the prospects for this year are grim as Ukraine will be hit by security and humanitarian crises due to the war, macroeconomic shocks from the conflict, rising energy and food prices, and growth in global FDI in 2022 and beyond. Investor uncertainty.
India, which received $64 billion in FDI in 2020, reported a decline of $45 billion in FDI inflows in 2021. But India was still among the top 10 economies for FDI inflows in 2021, ranking seventh behind the US, China, Hong Kong, Singapore, Canada and Brazil. South Africa, Russia and Mexico rounded out the top 10 economies for FDI inflows in 2021.
“Flows into India decreased to $45 billion. However, new international project finance deals were announced in the country: 108 projects, compared to an average of 20 projects in the past 10 years,” the report said, adding that the largest number of 23 projects were in renewables.
Major projects include construction of a steel and cement plant in India by ArcelorMittal Nippon Steel (Japan) for $13.5 billion and a new car manufacturing facility by Suzuki Motor (Japan) for $2.4 billion.
Foreign direct investment from South Asia, mainly from India, increased 43 percent to $16 billion.
The report said the war in Ukraine would have far-reaching consequences for international investment in economic development and the Sustainable Development Goals (SDGs) in all countries.
It comes as a fragile world economy is beginning to recover unevenly from the effects of the pandemic.
The report said the direct effects of the war on investment flows from Russia and Ukraine include halting of existing investment projects and cancellation of announced projects, exodus of multinational enterprises (MNEs) from Russia, widespread loss of property values and sanctions. Virtually stopping the outflow.
It added that as of today, MNEs from China and India account for a negligible share (less than 1 per cent) of FDI stock in Russia, although their share is larger in ongoing projects.
Despite successive waves of COVID-19, FDI in developing Asia rose for the third year in a row to an all-time high of $619 billion, underscoring the region’s resilience, the report said. It is the largest recipient of FDI in the world, accounting for 40 per cent of the global inflows.
The upward trend for 2021 was widely shared across the region, with South Asia being the only exception, where FDI inflows declined by 26 per cent to $52 billion in 2021 from $71 billion in 2020, as registered in 2020. There were no big M&As (Mergers and Acquisitions). repeated.
Inflows are highly concentrated and six economies (China, Hong Kong, Singapore, India, the United Arab Emirates and Indonesia in that order) account for more than 80 per cent of FDI in the sector.
The report noted that international project finance announcements in industrial real estate have also increased steadily over the years, with no reduction during the pandemic. In 2021, the deal number tripled to 152 with a value of $135 billion. Major projects include construction of a steel and cement manufacturing plant in India for $14 billion and construction of a 960-hectare pharmaceutical park in Vietnam for $10 billion.
Further, it said that over 60 per cent of greenfield investment is in developed economies, especially in Europe (45 per cent). Of the research and development (R&D) investments in developing economies, India accounts for nearly half of all projects.
Among developing economies, MNEs from the United States targeted India in 8 percent of deals, mostly buying a minority stake for market access and local innovative solutions.
For example, eBay (United States) jointly acquired an undisclosed minority stake in online retailer Flipkart (India) for $1.4 billion in 2017 along with Microsoft (United States) and Tencent (China). Similarly, PayPal (United States) acquired an unknown minority. Shares in a range of Indian companies across a range of industries including software providers, online brokerage systems, professional services and electronic payments (Moshpit Technologies, Speckle Internet Solutions, Scaleend Technologies, FreeCharge Payment Technologies).