India’s FDI rank rises to 7th position despite falling inflows: UNCTAD

India jumped one position to 7th among the top recipients of foreign direct investment (FDI) in the last calendar year (2021) despite FDI inflows into the country declining, according to the United Nations Conference on Trade and Development (UNCTAD).

In its latest World Investment Report released on Thursday, UNCTAD said FDI inflows into India declined to $45 billion in 2021 from $64 billion in the preceding year. While the United States ($367 billion) remained the top recipient of FDI, China ($181 billion) and Hong Kong ($141 billion) also retained second and third position respectively. Among the top 10 host economies, only India saw a decline in its inflows. However, outward FDI from India rose 43 per cent to $15.5 billion in 2021.

“Flows into India declined to $45 billion. However, a flurry of new international projects were announced. The largest number of projects (23) was in renewables. Large projects include the construction in India of a steel and cement plant for $13.5 billion by ArcelorMittal–Nippon Steel (Japan) and the construction of a new car manufacturing facility by Suzuki Motor (Japan) for $2.4 billion,” the report said.

UNCTAD said global FDI flows recovered to pre-pandemic levels last year, growing 64 per cent to $1.6 trillion but the prospects this year are grim. “This year the business and investment climate has changed dramatically as the war in Ukraine results in a triple crisis of high food and fuel prices and tighter financing. Other factors clouding the FDI horizon include renewed pandemic impacts, the likelihood of more interest rate rises in major economies, negative sentiment in financial markets and a potential recession,” it said.

Despite high profits, investment by multinational companies in new overseas projects were still one-fifth below pre-pandemic levels and for developing countries, the value of greenfield announcements stayed flat, the report said.

“UNCTAD foresees that the growth momentum cannot be sustained and that global FDI flows in 2022 will likely move on a downward trajectory, at best, remaining flat. However, even if flows remain relatively stable in value terms, new project activity is likely to suffer more from investor uncertainty,” it added.

While the recovery benefitted all regions, almost three-quarters of the growth was concentrated in developed economies as FDI flows rose 134 per cent and multinational companies posted record profits. “Flows to developing economies rose 30 per cent to $837 billion — the highest level ever recorded — largely due to strength in Asia, a partial recovery in Latin America and the Caribbean and an upswing in Africa. The share of developing countries in global flows remained just above 50 per cent,” the report said.

UNCTAD said multinational enterprises of the United States targeted India in 8 per cent of deals, mostly buying minority stakes to gain access to the market and to local innovative solutions.

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