India received usd64 billion in Foreign Direct Investment in 2020, the fifth largest recipient of inflows in the world, according to The World Investment Report 2021 by the UN Conference on Trade and Development (UNCTAD).
FDI inflows rose by 27 per cent to USD64 billion in 2020 from $51 billion in 2019, pushed up by acquisitions in the information and communication technology (ICT), the UN report said.
Major project announcements in the ICT industry included a USD2.8 billion investment by online retail giant Amazon in ICT infrastructure in India, it noted.
Released today, the report points out that global FDI flows have been severely hit by the pandemic and they plunged by 35 per cent in 2020 to USD1 trillion from USD1.5 trillion in 2019.
Lockdowns caused by Covid-19 around the world slowed down existing investment projects, and prospects of a recession led multinational enterprises (MNEs) to reassess new projects, it added.
The pandemic boosted demand for digital infrastructure and services globally. This led to higher values of greenfield FDI project announcements targeting the ICT industry, rising by more than 22 per cent to $81 billion.
Announced greenfield projects in India contracted by 19 per cent to $24 billion, “and the second wave in April 2021 is affecting economic activities, which could lead to a larger contraction in 2021,” it said, adding that the outbreak in India severely hit main investment destinations such as Maharashtra and Karnataka (home to the Bengaluru tech hub), which faced new lockdowns as of April 2021, exposing the country to production disruption and investment delays.
“Yet India’s strong fundamentals provide optimism for the medium term. FDI to India has been on a long-term growth trend and its market size will continue to attract market-seeking investments. In addition, investment into the ICT industry is expected to keep growing,” the report said.
The report said FDI in South Asia rose by 20 per cent to $71 billion, driven mainly by strong M&As in India. “Amid India’s struggle to contain the Covid-19 outbreak, robust investment through acquisitions in ICT (software and hardware) and construction bolstered FDI,” it said adding that cross-border M&As surged 83 per cent to $27 billion, with major deals involving ICT, health, infrastructure and energy.
Large transactions included the acquisition of Jio Platforms by Jaadhu, a subsidiary of Facebook for USD5.7 billion, and Unilever India’s merger with GlaxoSmithKline Consumer Healthcare India, (a subsidiary of GSK United Kingdom) for USD4.6 billion among others – also contributed, it said.
The report cautioned that while the Asian region has managed the health crisis relatively well, the recent second wave of COVID-19 in India shows that significant uncertainties remain.
“This has major impacts on prospects for South Asia. A wider resurgence of the virus in Asia could significantly lower global FDI in 2021, given that region’s significant contribution to the total,” the report said.
FDI inflows to developing Asia grew by 4 per cent to $535 billion in 2020, making it the only region to record growth and increasing Asia’s share of global inflows to 54 per cent. In China, FDI increased by 6 per cent to $149 billion. While some of the largest economies in developing Asia such as China and India recorded FDI growth in 2020, the rest recorded a contraction, it said.
The report added that FDI inflows in Asia are expected to increase in 2021, outperforming other developing regions with a projected growth of 5–10 per cent. “Economies in East and South-East Asia, and India, will continue to attract foreign investment in high-tech industries, given their market size and their advanced digital and technology ecosystem,” it said.