Home >Economy >India’s FY22 FDI inflows may be affected as investors remain cautious

NEW DELHI: India received a record $81.7 in foreign direct investments (FDI) in fiscal 2020-21, the only bright spot in a year when the economy is likely to have contracted 8%, the worst in 40 years.

The 10% year-on-year jump in FDI at a time when global inflows contracted is surely a stupendous achievement.

"Measures taken by the government on the fronts of FDI policy reforms, investment facilitation and ease of doing business have resulted in increased FDI inflows into the country. The trends in India’s FDI are an endorsement of its status as a preferred investment destination amongst global investors," the commerce and industry ministry has said in a statement.

But a deeper analysis shows that at least 34% of the total FDI inflows in FY21 can be attributed to money put by global investors in Mukesh Ambani-led Reliance Industries Ltd. The oil-to-telecom conglomerate sold equity shares in seven group companies worth nearly $28 billion, of which around $20 billion was that of Jio Platforms, to foreign investors, including internet giants such as Facebook and Google. The bunching-up of foreign investments in one year boosted FDI inflows to record levels in FY21, but a feat unlikely to be repeated for a second consecutive year.

Even as the global economy is expected to emerge out of the debilitating effect of the pandemic in 2021, with developed economies like the US, EU, the UK expected to record healthy growth benefiting from their rapid vaccination drives, India is expected to be a laggard, thanks to the second wave of the pandemic and the tardy pace of vaccination.

Global consultancy firm Kearney releasing its latest Foreign Direct Investment Confidence Index on Monday said despite global economic recovery, business leaders worldwide remain cautious in their outlook for next three years and that it will take some time for global investment flows to fully emerge from the long shadow of covid-19.

“The speed and scope of recovery--both human health and economic--are uncertain. The specter of vaccine nationalism and the continued healthcare challenges faced by several emerging markets underline threat of new virus variants that could be more resistant to vaccines. Likewise, the economic outlook is clouded by uneven rates of renewed dynamism," it added.

India was absent from Kearney’s FDI Confidence Index list of top 25 countries for the second consecutive year after coming in at the 16th spot in 2019. It stood at the 11th, 8th and 9th spots on the 25-country index in 2018, 2017 and 2016, respectively.

"India has been deliberating a data privacy bill with implications for data rules that investors are likely monitoring closely," Kearney said in its report.

The United Nations Conference on Trade and Development (UNCTAD) in January said uncertainty about the covid-19 pandemic’s evolution and the global investment policy environment will continue to affect FDI flows in 2021 and that prospects for 2021 are a major concern for developing countries. Global FDI collapsed in 2020, falling 42% to an estimated $859 billion from $1.5 trillion in 2019, according to an UNCTAD Investment Trends Monitor. It had projected a 5-10% FDI slide in 2021 in last year’s World Investment Report.

"For developing countries, the prospects for 2021 are a major concern," James Zhan, director of UNCTAD’s investment division said. Although, FDI flows in developing economies appear relatively resilient in 2020, greenfield announcements fell 46% and international project finance by 7%, according to the report.

At a time when India is looking to attract major foreign investment into its manufacturing sectors through the various Production Linked Incentive schemes, the drop in greenfield investments do not augur well for FY22.

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