India Retains Its Place Among Top Ten In FDI

-
India has gained by 16 per cent in terms of Foreign Direct Investment (FDI) inflow, from $42 billion to $49 billion in 2019, holding its position amongst top 10 FDI inflow-host countries. The recent report titled “Investment Trend Monitor" by UNCTAD (United Nations Conference on Trade and Development) stated. The report states that, this surge in India is when the global foreign direct investment remained flat in 2019, at $1.39 trillion, a decline of 1% from $1.41 trillion. India tops in FDI, when both the United States and China saw a flat FDI with zero-growth of capital in-flows. 

The South Asian region recorded a 10% increase in FDI to $60 billion, with India holding more than 80% of it. The majority went to services industries, including information technology. Our neighbours, Bangladesh and Pakistan faced a decline in FDI of 6% and 20%, respectively, to $3.4 billion and $1.9 billion. 

The political upheaval across the globe had an evident impact on the flow of FDI: with United Kingdom facing a decline of 6% following the unfolding of Brexit and European Union also facing a reduction by 15% to $305 billion; with Brazil gaining 26% at the start of the privatization programme. The political economy is a crucial determinant for FDI inflows and the political events can definitely act as a disruption for foreign investment. 

The transition of capital in-flows from portfolio investment to foreign direct investment (FDI) is better as FDI is more stable. The portfolio investment holds “hot” money which responds to the interest rate and can be volatile. It is heartening to note that India’s Foreign Exchange Reserves has also dilated at an all-time Exchange Reserves, starting the year with an increase of $65.1294 billion since January 4, 2019. This is roughly equivalent to the Foreign Exchange Reserves of Australia, Finland, and Iceland combined. Foreign Exchange comprise of 4 components – FCAs (Foreign Currency Assets), Gold, SDR (Special Drawing Rights), and RTP (Reserve Positions in IMF). The developing economies continue to absorb more than half of global FDI flows and half of the top largest receipts, namely – China, Singapore, Brazil, Hong Kong, China, and India, at an estimated $695 billion. The United States held its top position with a 1% decline at $251 billion. 

Considering the regional variation, Africa, Latin America and the Caribbean economies were the net gainers, with an increase of 3 and 16 percent respectively, North America was flat with zero growth in FDI. Asia and Europe at the aggregate level, were the net losers, with a decline of 6 and 4 percent, respectively. Considering the development perspective, the transition economies gained the most at 65%, while developing economies were flat, and developed economies faced a decline of 6%. 

The UN report also emphasises that the cross-border M&As (Mergers and Acquisitions) decrease by 40% in 2019 to $490 billion, the lowest level since 2014. The fall in global cross-border M&As sales was most rooted in the service sector with a decline of 56%, to $207 billion, followed by manufacturing with a decrease by 19% to $249 billion and the primary sector, with a decline of 14%, to $34 billion. 

The UN report also emphasises a positive observation, saying that “FDI flows are still expected to rise moderately in 2020, as current projections show the global economy to improve”. 

This positive news on FDI in India came at a moment when International Monetary Fund (IMF) Chief Economist Gita Gopinath expressed concerns on India’s economic slowdown. The impact of surge in foreign direct investment on economic growth is an empirical question and needs to be analysed in the long run. The Government of India’s on-going structural reforms in the fiscal and financial sector is crucial for economic growth and macro-economic stability. 

Script: Dr. Lekha S Chakraborty, Professor,

National Institute of Public Finance and Policy

Comments

Post a Comment

Popular posts from this blog

The Data Darbar Suicide Attack

-
The deadly attack on the famous Sufi shrine Data Darbar in Lahore on the second day of the holy month of Ramadan that killed 10 and injured more than 25 people is yet another ghastly reminder that Pakistan still shelters terrorist groups that have now come to haunt its own State. The suicide bombing was apparently targeted towards the elite security force that was assigned to guard the Shrine as the inflow of devotees increase during Ramadan. This is not the first time a Sufi Shrine was targeted by terrorists in Pakistan. Many Shrines like Lal Shahbaz Qalandar in Sehwan, Baba Farid in Pakpattan and Abdullah Shah Ghazi in Karachi were attacked in the past. The Sufi nature of these shrines has made them an easy target of the terrorist groups that consider Sufis to be heretics. The terror organisations within Pakistan such as the Pakistan Taliban, Lashkar-e-Jhangvi and Hizbul Ahrar (said to be a splinter faction of the local Taliban) that took responsibility for the latest bombings in...
Read more

Military Build-Up In The Persian Gulf

-
In response to the attack on two oil tankers in the Gulf of Oman last week; the US Department of Defence announced that it is sending an additional 1,000 troops to bolster security in the Persian Gulf. This comes amidst the escalating tensions in the region following US decision to withdraw from the Iran nuclear deal (Joint Comprehensive Plan of Action or JCPoA) in May 2018. The US also re-imposed economic sanctions on Iran and last month ended all waivers for Iranian oil imports. President Donald Trump further decided to impose new sanctions and warned of secondary sanctions on individuals or entities doing business with Iranian industries under sanctions. Iran too had responded with warning other signatories of the JCPoA, especially UK, France and Germany, to do more to ease the impact of sanctions on Iranian economy failing which Tehran will be forced to retract from the deal. This prompted the US to send additional troops including Arlington and a Patriot missile battery. At ...
Read more

Pakistan’s Crippling Financial Crisis

-
As if the turmoil due to terrorism was not enough for Pakistan, it is facing fresh spate of demonstrations against unprecedented inflation that is putting the already crippling economy out of gear. Inflation is expected to rise to double-digitssoon. The major reason for this has been the steep rise in food and energy prices that has had a cascading effect on the process of other commodities. Pakistan’s imports are increasing and Foreign Exchange reserves have fallen to just about $8 billion; this is just enough for meeting payment obligations for two months. The exchange value of the Pakistani Rupee has fallen to 150 to a US dollar.It has been devalued 20 times during the past three years by about 20%. Since Pakistan is importing major part of its fuel requirements and many other commodities of daily consumption; steep inflation has led to almost halving the incomes of the people. This has led to large-scale public unrest in the country. Street protests led by Jamaat-e-Islami in Pesha...
Read more