'Bright spot' India takes massive hit

Bengaluru, NT Bureau: Foreign Direct Investment (FDI) into India declined by 43 per cent in 2023 to $28 billion while the inflows witnessed a two per cent global decrease.

The revelation was made by a United Nations Conference on Trade and Development (UNCTAD) report. India recorded the 15thhighest FDI inflows of any nation for the year, down from number eight a year prior.

In 2022, the country had been the recipient of foreign capital to the tune of $49 billion, recording a growth of 10 per cent. The news comes in the backdrop of the Prime Minister Narendra Modi-led Union government insisting that the Indian economy was “the lone bright spot in the world”.

Not ‘lone bright spot’ after all?

However, it appears that the country is especially vulnerable to global trends alongside other developing nations. The UNCTAD credits the attempts to fix a global minimum tax rate on the profits of large multinational corporations (MNCs) for the worldwide decline.

A global economic slowdown and geo-political tensions have also been cited as reasons for the reduction in FDI by the World Investment Report 2024. It is to be noted that Israel has been engaged in its bombing of Gaza for upwards of eight months.

There also appears to be no end in sight to Russia's military operations in Ukraine, which began in February 2022.

However, the UNCTAD said that India remained in the top five for both kinds of FDIs, namely Greenfield projects (for which no restriction is imposed by preexisting infrastructure) and international project finance deals (wherein companies are created for individual projects, and heavy borrowings are made).

In 2023, India slipped a single spot and became the fourth-largest recipient of Greenfield project announcements. The country retained its second spot on international project finance deals.

Moreover, FDI outflows from India grew and the country jumped three spots from 23rd in 2022 to 20th in 2023. Among the positives, the UNCTAD also listed India allowing foreign lawyers and firms to practise foreign law in the country.

The report observed that the country also finds itself among nations that have formulated frameworks on sustainable finance.

“While the prospects for FDI remain challenging in 2024, modest growth for the full year appears possible,” the UNCTAD report states.

US, China also hit

India was among the 20 countries worst hit by the plummeting FDI, alongside the likes of China, US, Australia and France. It was also noted that FDI fell by eight per cent in Asia to $621 billion.

“Sizeable declines were recorded in India and in west and central Asia,” the report adds.