Despite Covid India's FDI jumps by 27%, becomes fifth largest recipient

India's foreign direct investment receipts jumped by nearly 27% to $64 billion in 2020, making the country the fifth-largest FDI recipient in the world at a time when global FDI investment declined by 35% due to the Covid-19 global pandemic, writes Krishnanand Tripathi, Deputy News Editor, ETV Bharat.

New Delhi: India's foreign direct investment receipts jumped by nearly 27% to $64 billion in 2020, making the country the fifth-largest FDI recipient in the world at a time when global FDI investment declined by 35% due to the Covid-19 global pandemic, said a report by United Nation’s trading body United Nations Conference on Trade and Development (UNCTAD).

According to UNCTAD's World Investment Report, 2021 released on Monday, the Foreign direct investment (FDI) flows to developing countries in Asia increased by 4% to $535 billion in 2020, reflecting resilience amid global FDI contraction.

"Despite the pandemic, FDI to and from the region remained resilient in 2020. Developing Asia is the only region recording FDI growth, accounting for more than half of global inward and outward FDI flows," said UNCTAD's director of investment and enterprise, James Zhan. "FDI prospects in 2021 for Asia are more favourable than the global average, because of recovery in trade, manufacturing activities and a strong GDP growth forecast," he added.

The United States retained its top position as the world's largest FDI recipient with $261 billion investment, followed by China, which received $149 billion, and Hong Kong (SAR) in China received $119 billion. If one looks at cumulative FDI received by China and Hong Kong (SAR) then it accounts for $268 billion and surpasses the FDI receipts of the US last year. Singapore ranks fourth with $91 billion FDI while India received $64 billion as against $51 billion received in 2019, an increase of 26.7%.

Only South Asian country to register growth

According to the report, FDI in South Asia rose by 20% to $71 billion, driven mainly by a 27% rise in FDI in India to $64 billion. India accounts for more than 90% of the total receipts in South Asia.

"In India, robust investment in ICT and construction bolstered FDI inflows. Cross-border Mergers and Acquisitions surged 83% to $27 billion, with major deals involving ICT, health, infrastructure and energy," said the UNCTAD World Investment Report.

At a time when India registered nearly 27% growth in FDI inflows, other South Asian countries such as Pakistan, Bangladesh and Sri Lanka registered a decline in foreign direct investment during the pandemic period. FDI fell in other South Asian economies that rely on export-oriented garment manufacturing, said the report. While FDI inflows in Bangladesh and Sri Lanka contracted by 11% and 43% respectively, Pakistan FDI inflows were down by 6% to $2.1 billion.

The decline in Pakistan's FDI inflows was not as sharp as was the case with Sri Lanka and Bangladesh as FDI inflows in Pakistan were cushioned by the continued investments in power generation and telecommunication industries.

Global FDI declines by 35%

According to the UNCTAD report, the foreign direct investment flows plunged globally by 35% in 2020, from $1.5 trillion in 2019 to $1 trillion in 2020. Lockdowns caused by the COVID-19 pandemic around the world slowed down existing investment projects, and the prospects of a recession led multinational enterprises (MNEs) to reassess new projects, said the report.

The report said the fall was heavily skewed towards developed economies, where FDI fell by 58%, in part due to corporate restructuring and intra-firm financial flows. However, the situation is likely to improve this year as global foreign direct investment (FDI) flows are expected to bottom out in 2021 and recover some lost ground with an increase of 10% to 15%.