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BW Businessworld

Slow Growth Killed FDI Into India: Unctad

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Foreign direct investment (FDI) inflows to India dropped by 29 per cent to $26 billion in 2012, reveals the annual survey of investment trends of the United Nations Conference on Trade and Development (Unctad).
The World Investment Report 2013 of Unctad attributed the drop in FDI flow to slow growth in the country’s GDP and a high inflation. The percentage drop is higher than the global average as world over FDI inflows fell by 18 per cent to $ 1.35 trillon last year.
However, India continues to be among the top FDI destinations as Unctad forecasts the country to be the third largest FDI destination after the US and China in the short to medium term.
“Inflows to the services sector are likely to grow, thanks to the ongoing efforts to open up key economic areas such as retail," the report says.
Japan and Korea are expected to be the key contributors to the growth in FDI to India, with Delhi Mumbai Industrial Corridor and country specific / industry specific economic zones to be the prime destinations. “Leveraging public funds from foreign countries, these bilateral efforts may result in an increasing amount of FDI targeting industries such as electronics in the years to come”, it adds.
On outward FDIs from India, the report notes that home grown multinationals have been much less active in international M&As than in previous years. “The total value of cross border M&As undertaken by Indian companies dropped nearly three fifths in 2012 to about $ 2.6 billion, it says. The total outflows from India decreases to $8.6 billion, due to the shrinking cross-border M&As it adds. 
With a tag line 'Global Value Chains (GVC): Investment and Trade for Development', the report emphasises the role of value-added trade in the growth of developing countries GDPs. “In developing countries, value-added trade contributes nearly 30 per cent to countries’ GDP on average, as compared with 18 per cent for developed countries. GVCs have a direct economic impact on value added, jobs and income," the report says.
It also points out that for the first time ever, developing countries received more FDI than developed countries, accounting for 52 per cent of global FDI flows.
Unctad forecasts global FDI in 2013 to remain close to the 2012 level, with an upper range of $ 1.45 trillion.“FDI flows may then climb to $ 1.6 trillion in 2014 and $ 1.8 trillion in 2015. However, structural weaknesses in global financial system, deterioration of macroeconomic environment and policy uncertainities in areas crucial for investor confidence may alter these estimates, it cautions.