Every year, the United Nations publishes a report on Investment and Trade. A recent report says that Foreign Direct Investment (FDI) in India has touched the $64 Billion mark in the year 2020.
By receiving $64 Billion in FDIs, India has become the 5th largest recipient of inflows in the world.
India had received $51 Billion in the previous year. India experienced a big gain ($64 Billion) in 2020 despite the pandemic.
Globally, there has been a 35% decrease in FDIs but in some countries like India and China, the increment can be seen.
Understanding the difference: FDI vs FPI
Foreign Direct Investment (FDI)
When a foreign company invests in India in the hope to buy an asset for the long term or to get an ownership stake in the country, it is termed as Foreign Direct Investment (FDI). It can be done through the transfer of funds, resources etc.
Foreign Portfolio Investment (FPI)
When a foreign investment is made for a short term in the financial assets of a company, it is termed as Foreign Potential Investment (FPI). It can be done through investing in stocks, bonds, etc.
The government has announced that if the investment is less than 10% then it can be called FPI and for more than 10%, it can be termed as FDI.
An organization of the United Nations was established on 30th December 1964 in Geneva, Switzerland, which was named the United Nations Conference on Trade and Development (UNCTAD). Every year, the organization releases the World Investment Report. This year’s theme was Investing in Sustainable Recovery.
UNCTAD is permanently an intergovernmental body that deals with the United Nations secretariat for trading, investment, and development concerns.
UNCTAD aims to increase trade, investment opportunities and help in the progress of developing countries. FDI plays an important role in developing countries like India to give them an equitable rank in the world economy.
Also read- COVID Measures To Boost Economy
What does the report say?
The report released by UNCTAD says, globally, the FDIs were gravely affected due to the pandemic. They reduced by 35% than the previous year, from $1.5 Trillion to $1 Trillion. The lockdowns announced due to the COVID-19 pandemic paused many ongoing investment projects leading to a lesser investment than before. Many requests for new projects were also declined due to a lack of investment.
A bad impact on the economy was seen in developed countries. They had received around $750 Billion in the form of FDIs in the year 2019. In the year 2020, the decline was 58% in developed countries making the investment to be about $312 Billion. As a whole, if not seen individually, there has also been a decline in developing countries of 8% than the previous year’s investment, from $723 Billion to $663 Billion. Only specific developing countries like India and China have benefited from FDIs in the year 2020.
Why didn’t all developing countries see an increment?
The concept of Greenfield investments and Brownfield investments come into the picture here. When a project that requires investments is started from scratch, it is called Greenfield investment. When existing infrastructural projects like airports are renovated or restructured and require investments, it is called Brownfield investment. In many countries, due to the COVID-19 pandemic, Greenfield investments were hampered leading to a decline in FDI. International investment is necessary for poor developing countries to start new infrastructure projects.
Also read- Fall in Adani Shares
What is different in India?
Though we had a strict lockdown, FDI in India increased by 27%, from $51 Billion in 2019 to $64 Billion in 2020 pushing it to the 5th rank globally. The credit goes to the Information and Communication Technology (ICT) industry in India.
The pandemic escalated the demand for digital infrastructure in the country. This led to increased Greenfield FDI investments. For example, tech giants like Amazon invested around $2.8 Billion for projects in the ICT infrastructure and a subsidiary company of Facebook named Jaadhu invested $5.7 Billion in Jio.
What might go wrong?
There is a contraction of around 19% in FDI for some Greenfield projects except the ICT industry. The investment was around $24 Billion for other industries.
The second wave of the pandemic might affect the FDIs. A major contraction in investments can be expected in 2021.
Production Linked Incentive (PLI) scheme
Under this scheme, the manufacturers, exporters, etc. are provided with subsidies or incentives to attract production in India.
For future prospects, schemes like PLI can help the country recover from the drastic effects of the second wave.
Investments are necessary for all sectors in developing countries like India for sustainable and effective recovery from the COVID-19 pandemic. It will help improve healthcare facilities, to support upcoming infrastructure projects etc.
Learn Stock Market Courses