According to a UN report, India received USD 64 billion in Foreign Direct Investment in 2020, making it the world’s fifth-largest recipient of inflows. The COVID-19 second wave in the country is weighing heavily on the country’s overall economic activities, but its strong fundamentals provide “optimism” for the medium term. Global FDI flows were badly harmed by the pandemic, according to the UN Conference on Trade and Development’s (UNCTAD) World Investment Report 2021, which claimed they fell by 35% in 2020 to USD 1 trillion from USD 1.5 trillion the previous year.
COVID-19-related global lockdowns hindered current investment projects, and the possibility of a recession prompted multinational corporations (MNEs) to reconsider new initiatives. According to the study, FDI into India grew by 27% to USD 64 billion in 2020 from USD 51 billion in 2019, owing to acquisitions in the information and communication technology (ICT) sector, making India the world’s fifth-largest FDI recipient. Global demand for digital infrastructure and services increased as a result of the epidemic. Greenfield FDI project announcements targeting the ICT industry increased by more than 22% to USD 81 billion as a result of this.
Among the major project announcements in the ICT industry was Amazon’s USD 2.8 billion investment in India’s ICT infrastructure. The second wave of the COVID-19 epidemic in India, according to the study, is having a significant impact on the country’s total economic activity. “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, which is home to one of the largest automotive manufacturing clusters, and Karnataka, which is home to one of the largest software manufacturing clusters.
“However, India’s solid foundations give the reason for hope in the medium run.” India’s FDI has been on a long-term upward trajectory, and the country’s market size will continue to attract market-seeking capital. Export-related manufacturing, which is a key investment sector for the country, may take longer to recover, but government assistance can help. India’s Production Linkage Incentive plan, which aims to encourage manufacturing and export-oriented investments in key industries such as automotive and electronics, has the potential to boost manufacturing investment.
Inflows of foreign direct investment into developing Asia increased by 4% to USD 535 billion in 2020, making it the only region to see growth and raising Asia’s share of global inflows to 54%. FDI into China grew by 6% to USD 149 billion. While some of emerging Asia’s major economies, such as China and India, had an increase in FDI in 2020, the others saw a decrease. In the second half of 2020, signs of trade and industrial output recovery create a good basis for FDI growth in 2021. However, many economies in the area continue to face significant negative risks as they struggle to manage repeated waves of COVID-19 cases and have a little budgetary capacity for recovery expenditures.
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