The United Nations Conference on Trade and Development (UNCTAD) in its recently released Global Investment Trend Monitor Report, named India as one of the top 10 recipients of Foreign Direct Investments (FDI) in 2019.
Global Trend
In 2019, there was a noted decline in global FDI from the revised $1.41 trillion (in 2018) to $1.39 trillion. This 1% decrease was triggered by multiple factors such as a weaker macroeconomic performance along with policy uncertainty that led to investor anxiety amidst escalating trade tensions. Despite this drop, developing economies remained charmful for investors, attracting over half of the global FDI flows. On the contrary, developed countries witnessed a further decrease in FDI flows by 6%. The United States still emerged as the biggest recipient of FDI, followed by China and Singapore.
Regional & India
There was positive news for South Asia, which recorded a 10% increase in FDI. The growth propulsion was India, which registered a significant 16% boost in its FDI inflows. In terms of numbers, India saw an absorption of $49 billion in FDIs in 2019, a considerable rise from $42 billion in 2018. The primary sector that attracted this capital was the services industry, including Information Technology. Conversely, neighboring countries Bangladesh and Pakistan faced a decline in their FDI inflows by 6% and 20%, respectively.
Mergers & Acquisitions
According to the UNCTAD report, 2019 also marked a 40% decrease in cross-border Mergers & Acquisitions (M&As), recording the lowest level since 2014. Factors contributing to this downfall include sluggish Eurozone growth and the uncertainty surrounding Brexit. The decrease in M&As was most apparent in the services sector (56% decline), followed by manufacturing (19% decline) and primary sectors (14% decline).
| Sector | Decrease in M&As |
|---|---|
| Services | 56% |
| Manufacturing | 19% |
| Primary | 14% |
Future Projections
Despite the challenges, the UNCTAD projects a moderate rise in FDI flows for 2020. With the global economy projected to improve from its weakest performance since the 2009 financial crisis – GDP growth, gross fixed capital formation, and trade are all expected to rise. This improvement in macroeconomic conditions may prompt Multinational Enterprises (MNEs) to resume investments in productive assets, provided they have easy access to cheap money. However, potential risks remain. These include a high debt accumulation among emerging and developing economies, geopolitical risks, and concerns about a further shift towards protectionist policies.
