Unctad report: India sees sharpest rise in FDI inflows among key nations

India and China were two major “outliers” in a gloomy year for foreign direct investment (FDI ), as global inflows plunged 42% on year in 2020 to $859 billion, the lowest level since the 1990s, according to the latest Unctad report.

While India witnessed a 13% year-on-year rise, the highest among key nations, in FDI inflows in 2020, China’s rose 4%. Of course, in absolute term, China remained way ahead, with an inflow of as much as $163 billion, while India’s stood at $57 billion. Inflows into India were boosted by those into the digital sector, the report said. Analysts have pointed out that a sizable chunk of these was drawn by Reliance Jio alone.

The UK and Italy saw an over 100% crash each in FDI inflows, followed by Russia (96% drop), Germany (61%), Brazil (50%), the US (49%), Australia (46%) and France (39%).

The Unctad report also warned that uncertainty about the Covid-19 evolution will continue to hamper global FDI inflows in 2021, “threatening sustainable recovery prospects”.

Developing economies drew as much as 72% of global FDI in 2020 – their highest share on record. Asian nations did particularly well, attracting $476 billion in FDI last year.

Responding to the report, commerce and industry minister Piyush Goyal tweeted: “India Means Business: Despite Covid, FDI inflows into India grew at fastest rate among top economies. With double-digit FDI growth of 13% in 2020, the world is beating a path to India.”

Addressing a virtual round-table of mostly foreign investors, Prime minister Narendra Modi, in November, promised “whatever it takes” to make India the engine of global growth. He invited the top executives of 20 global pension and sovereign wealth funds that together manage about $6 trillion in assets to be part of the country’s “exciting progress ahead”.

Investments remain critical to India’s resurgence story, as private consumption has been badly bruised by income losses in the aftermath of the pandemic. Also, India’s reliance on FDI grew substantially in recent years, as overleveraged domestic investors cut down on fresh expansions.

Even before the pandemic struck, the share of gross fixed capital formation (GFCF) in GDP collapsed to 29.8% on year in FY20 from as much as 34.3% in FY12.

However, after a record 47.1% slide in GFCF in the June quarter, thanks to the Covid-induced lockdown, the contraction in such fixed investments narrowed sharply to just 7.3% in the September quarter, suggesting a sharp rebound quarter-on-quarter.