World Investment Report 2021 released

Context: UN Conference on Trade and Development (UNCTAD) has released its World Investment report 2021 

Key findings: – 

Specific to India 

FDI in 2020 

• India was 5th biggest recipient: India’s FDI rose 27% to $64 billion in a year when global investment flows shrank 35% to $1 trillion. This peculiar phenomenon happened due to the following reason: 

• Mergers and acquisitions (M&A), especially in the technology space due to increased demand for digital products and services. India saw huge investments from overseas with major deals involving ICT (Implementation of information and Communication Technology), health, infrastructure, and energy. Large transactions included:  

• the acquisition of Jio Platforms by Jaadhu, a subsidiary of Facebook 
• the acquisition of Tower Infrastructure Trust by Canada’s Brookfield Infrastructure and GIC (Singapore) 
• the sale of the electrical and automation division of Larsen & Toubro India 
• Unilever India’s merger with GlaxoSmithKline Consumer Healthcare India, a subsidiary of GSK United Kingdom)  

• India, China and Hong Kong were among the countries saw a rise in 2020. 
• FDI outflows from South Asia fell 12% to USD 12 billion, due to a drop in investment from India. 

• India ranked 18 out of the world’s top 20 economies for FDI outflows, with 12 billion dollars of outflows recorded from the country in 2020 as compared to 13 billion dollars in 2019. 

• Impact of COVID: 

• Announced greenfield projects in India contracted by 19% to USD 24 billion, and the second wave in April 2021 is affecting economic activities, which could lead to a larger contraction in 2021. 
• Outbreak in India severely hit main investment destinations such as Maharashtra, which is home to one of the biggest automotive manufacturing clusters (Mumbai–Pune–Nasik–Aurangabad) and Karnataka (home to the Bengaluru tech hub) 

• Prediction for 2021:  

• Report suggests that investment in new ventures in India could be hit, but the production-linked incentive scheme and high-tech sectors could help drive growth.  
• FDI to India has been on a long-term growth trend and its market size will continue to attract market-seeking investments 
• Investments from India are expected to stabilize in 2021, supported by the country’s resumption of free trade agreement (FTA) talks with the European Union (EU) and its strong investment in Africa. 

Note: Greenfield projects are the projects which are built from scratch and are not constrained by prior work. It is constructing on unused land where there is no need to remodel or demolish an existing structure. Some examples of greenfield projects are new factories, power plants or airports which are built from scratch. Those facilities which are modified/ upgraded are called brownfield projects. 

Downward Trend in FDI Global Reasons  

• Slowdown in existing investment projects: Lockdowns caused by Covid-19 around the world slowed down existing investment projects, and prospects of a recession led multinational enterprises (MNEs) to reassess new projects. 
• Boost in the demand of digital services: The pandemic boosted demand for digital infrastructure and services globally. This led to higher values of greenfield FDI project announcements targeting the ICT industry, rising by more than 22% 
• FDI inflows to developing Asia grew by 4% in 2020, making it the only region to record growth and increasing Asia’s share of global inflows to 54%. In China, FDI increased by 6%. 
• While some of the largest economies in developing Asia such as China and India recorded FDI growth in 2020, the rest recorded a contraction. 
• FDI inflows in Asia are expected to increase in 2021, outperforming other developing regions with a projected growth of 5–10%. 

Terms to know 

• Foreign Direct Investment (FDI) 

Source 1: Times of India 

Source 2: Live mint 

Source 3: Hindustan Times 

Source 4: India Today