The United Nations Conference on Trade and Development (UNCTAD) has said that India’s economy could prove the most resilient in South Asia and its large market will continue to attract market-seeking investments to the country even as it expects a dramatic fall in global foreign direct investment (FDI).

However, inflows may shrink sharply. As per UNCTAD, India jumped to ninth spot in 2019 on the list of global top FDI recipients from the twelfth spot in 2018.

Due to the Covid-19 crisis, global FDI flows are forecast to nosedive by upto 40% in 2020, from their 2019 value of $1.54 trillion, bringing FDI below $1 trillion for the first time since 2005. FDI is projected to decrease by a further 5-10% in 2021 and a recovery is likely in 2022 amid a highly uncertain outlook.

“A rebound in 2022, with FDI reverting to the pre-pandemic underlying trend, is possible, but only at the upper bound of expectations… The outlook is highly uncertain,” UNCTAD said in its World Investment Report 2020 released Tuesday.

FDI inflows into India rose 13% on year in FY20 to a record $49.97 billion compared to $44.36 billion in 2018-19. In 2019, FDI flows to the region declined by 5%, to $474 billion, despite gains in South East Asia, China and India, according to the Geneva-based organisation.

“FDI to India has been on a long-term growth trend. Positive, albeit lower, economic growth in the postpandemic period and India’s large market will continue to attract market-seeking investments to the country,” it said.

India’s most sought-after industries, which include professional services and the digital economy, could see a faster rebound as global venture capital firms and technology companies continue to show interest in India’s market through acquisitions. Investors concluded deals worth over $650 million in the first quarter of 2020, mostly in the digital sector, it said, adding that twelve large deals in energy were also concluded. Singapore remained the largest source of intraregional investment and a major investor in India.

The largest five recipients were China, Hong Kong (China), Singapore, India and Indonesia in developing Asia.

Outflows from South Asia grew 6%, driven by investment from India. Yet they remained small, representing only 1% of global outflows. Companies in India are the subregion’s largest investors, with more than 90% of outflows in 2019.

“Investments from India are expected to decline in 2020, with the largest MNEs revising their earnings down by 25% in early 2020 due to the impact of the pandemic,” UNCTAD said.

Health investment

Highlighting that in order to address the adverse impact of the pandemic, several economies have recently adopted policy measures to boost investment in those industries that are crucial to containing the spread of the virus, it said India, Italy and the US have adopted measures to encourage manufacturers to expand or shift production lines to medical equipment and personal protective equipment (PPE) to increase the quantity available.

Source : PTI