The ‘Investment Trends Monitor Report’ by the United Nations Conference on Trade and Development (UNCTAD) reveals that global Foreign Direct Investment (FDI) dropped by 42% to an estimated USD 859 billion in 2020, from USD 1.5 trillion in 2019. This decline is significant as it reflects levels last seen in the 1990s, and is more than 30% below the investment decline witnessed post the 2008-2009 global financial crisis.
Key Global FDI Trends
India and China experienced a growth in FDI inflows during 2020, with India seeing a 13% year-on-year increase, and China observing a 4% rise. Despite India’s significant growth, China continued to lead in absolute terms with $163 billion inflow, compared to India’s $57 billion.
On the other hand, advanced economies faced major setbacks. Countries like the UK and Italy saw a crash of over 100% each in FDI inflows. Russia experienced a decrease of 96%, Germany 61%, Brazil 50%, the US 49%, Australia 46% and France 39%.
Developing economies, conversely, attracted around 72% of global FDI in 2020, marking their highest share on record. Asian nations performed notably well, drawing in USD 476 billion in FDI.
Projections for Global FDI in Future
It is projected that uncertainties concerning the evolution of the Covid-19 pandemic will continue to impact global FDI inflows in 2021, posing a potential threat to sustainable recovery prospects.
The Rise of FDI in India
FDI influx into India’s digital sector played a pivotal role in the country’s increased FDI. High return capabilities made possible by favourable demographics, substantial mobile and internet penetration, and massive consumption combined with technology uptake, presented an attractive market opportunity for foreign investors.
India’s Measures to Boost FDI
The Indian Government has implemented several measures to attract foreign investment. In 2020, they launched the Production-Linked Incentive (PLI) scheme for electronics manufacturing. Amendments were made in the FDI Policy 2017 to permit 100% FDI under automatic route in coal mining activities.
Furthermore, the government clarified that investments in Indian entities engaged in contract manufacturing were permitted under the 100% automatic route, provided they are undertaken through a legitimate contract.
The Foreign Investment Facilitation Portal (FIFP), run by the Department for Promotion of Industry and Internal Trade, Ministry of Commerce and Industry, acts as the online single point interface of the Government of India with investors to facilitate FDI.
About Foreign Direct Investment (FDI)
FDI is an investment made by a firm or individual in one country into business interests located in another country. It leads to the establishment of either effective control of, or at least substantial influence over, the decision-making process of a foreign business, making it distinct from portfolio investments.
FDI is critical because it provides countries with access to external capital, technology, market access and tax contributions.
FDIs are usually categorized into horizontal, vertical or conglomerate types based on the nature of business operation in a foreign country.
Three major components of FDI are equity capital, reinvested earnings and intra-company loans.
Foreign investments in India can be made through two routes: Automatic Route, which does not require prior government approval and Government Route, where the foreign entity has to acquire the approval of the government.
About United Nations Conference on Trade and Development (UNCTAD)
Established in 1964, UNCTAD is a permanent intergovernmental body headquartered in Geneva, Switzerland. It aims to promote development-friendly integration of developing countries into the world economy. UNCTAD publishes several reports, including the Trade and Development Report, World Investment Report, among others.
