The report titled ‘Investment Trends Monitor’ by the United Nations Conference on Trade and Development (UNCTAD) reveals that India attracted USD 22 billion of Foreign Direct Investment (FDI) flows in the first half of 2018. This contribution resulted in a 13% rise in the sub-region’s FDI inflow, having a marked impact on South Asia’s economy.
UNCTAD’s Report
As per the UNCTAD report, global foreign direct investment experienced a drop by 41% in the same period due to tax reforms implemented by the US administration that encouraged large firms to bring back earnings from Western European countries abroad. However, this decline in FDI was predominantly noted in wealthy, industrialized nations, particularly in North America and Western Europe. On the other hand, developing economies witnessed a slight reduction in FDI flows during the first half of the year, showing a decrease of 4% as compared to 2017.
Factors Impacting the Decline in FDI
There are several contributing factors to this decline. Among them are the uncertainty about the details and impacts of tax reforms and the potential effects of unresolved international trade disputes; for instance, the tit-for-tat tariffs imposed by the United States and China.
Contrasting Trends: A Rise in Greenfield Projects
In contrast to the overarching decline in foreign investment, the UNCTAD report points out an increase in “greenfield” projects by 42%. These initiatives often involve creating operations in a foreign country from scratch and are considered an indicator of future trends.
| Country | FDI Inflows ($ Billion) |
|---|---|
| China | 70 |
| UK | 65.5 |
| US | 46.5 |
About UNCTAD
Founded in 1964, the United Nations Conference on Trade and Development (UNCTAD) is a permanent intergovernmental body. With headquarters in Geneva, Switzerland, it is centered towards integration of developing countries into the world economy in a development-friendly way. They publish multiple significant reports like Trade and Development Report, World Investment Report, The Least Developed Countries Report, Information and Economy Report, Technology and Innovation Report, and Commodities and Development Report.
Foreign Direct Investment (FDI)
Foreign direct investment (FDI) involves an investment by a firm or individual based in one country into business interests located in another country. It establishes either effective control of, or at least substantial influence over, the decision-making process of a foreign business, thereby distinguishing it from portfolio investments where an investor simply buys equities of foreign-based companies.
The relevance of FDI lies in its capacity to provide countries with access to external capital, technology, market access, and tax contributions. It includes horizontal, vertical, and conglomerate categories wherein a company either establishes the same type of business, related business activities, or invests in a field unrelated to its existing business in a foreign country respectively.