NEW DELHI :
Foreign direct investment (FDI) into India may shrink sharply in 2020 because of coronavirus and the consequent lockdown, supply chain disruptions and economic slowdown after jumping over 20% to $51 billion in 2019, according to the United Nations Conference on Trade and Development (UNCTAD).
According to the latest ‘World Investment Report’ by UNCTAD, India jumped from 12th position in 2018 to 9th in 2019 on the list of the world’s top FDI recipients.
“In South Asia, FDI is also expected to contract sharply. In India, the biggest FDI host in the sub-region, with more than 70% of inward stock, the number of greenfield investment announcements declined by 4% in the first quarter, and M&As (mergers and acquisitions) contracted by 58%," the UNCTAD report said.
However, UNCTAD said India’s economy could prove to be the most resilient in the region.
“FDI to India has been on a long-term growth trend. Positive, albeit lower, economic growth in the post-pandemic period and India’s large market will continue to attract market-seeking investments to the country," UNCTAD report added.
The report said India’s most sought-after industries, including professional services and the digital sector, 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. Twelve large deals in energy were also concluded, such as the acquisition by Total (France) of Adani Gas (India), valued at $800 million," the report added.
According to the report, global FDI flows are forecast to decrease by up to 40% in 2020 from their 2019 value of $1.54 trillion. This would bring FDI below $1 trillion for the first time since 2005. In addition, FDI is projected to decrease by a further 5% to 10% in 2021 before initiating a recovery in 2022.
Global FDI flows rose modestly in 2019, following sizable declines in 2017 and 2018.
At $1.54 trillion, inflows were 3% up—primarily as a result of higher flows to developed economies, as the impact of the 2017 tax reforms in the US waned.
“The outlook is highly uncertain. Prospects depend on the duration of the health crisis and on the effectiveness of policies mitigating the pandemic’s economic effects," said UNCTAD secretary-general Mukhisa Kituyi.
Last week, the Organization for Economic Cooperation and Development said the world economy may contract by 6% or 7.6% in 2020, depending on a single-hit or a double-hit scenario of the coronavirus pandemic, respectively. It expects India’s economy to contract by as much as 7.3% in FY21 if a second wave of coronavirus sweeps the country.
Investment flows are expected to slowly recover starting 2022, led by global value chains restructuring for resilience, replenishment of capital stock and recovery of the global economy, the report said.