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India’s Foreign Direct Investment up by 20% in 2014

NEW DELHI: The United Nations Conference on Trade and Development (UNCTAD) Friday said notwithstanding the decline in global Foreign Direct Investment (FDI) inflows, India’s FDI increased by 26 per cent in 2014 to an estimated 35 billion dollars with maximum growth in services sector.

China toppled the United States in 2014 as the world’s largest recipient of FDI — a position that the US had been holding consistently since 1980’s — though with a modest increase of three per cent.

This was all a part of the latest ‘Global Investment Trade Monitor’ report. The hike of FDI in China is mainly due to an increase in FDI in the service sector, even as FDI in manufacturing sector, particularly from Japan, and in industries sensitive to rising labour costs fell.

The manufacturing sector in terms of net cross border mergers and acquisitions (M&A) sales recorded a decrease for India from  4,604 million dollars to 4,172 million dollars, the report said. FDI flows to India increased by as much as 26 per cent in 2014 to an estimated 35 billion dollars, with maximum growth in the services sector, especially in electricity, gas, water, waste management and information and communication, the report said.

The figure was one of the highest in recent years, though in 2008 FDI peaked in India with 47 billion dollar investment followed by 35.6 billion dollars in 2009. Dr James Zhan, Director of Investment and Enterprise, at UNCTAD said: “India is still a bright spot for FDI despite a global decline. It is at a significant historical high though not at the highest level of investment.”

“If policy trends encourage liberalisation then we can expect more FDI in China, despite a slowdown in economic growth,” Dr Zhan said referring to new draft for full foreign investment law that was proposed last week in Beijing.

The top five FDI hosts in 2014 were China 128 billion dollars, followed by Hong Kong 111 billion dollars, the US 86 billion dollars, Singapore (81 billion dollars) and Brazil 62 billion dollars.

“In 2014, global FDI inflows declined by eight per cent to an estimated 1.26 trillion dollars due to fragility of the global economy, policy uncertainty and geo-political risks,” the report said.

The drop in FDI in the US has been primarily due to a fall in cross-border M&A sales, particularly due to the Verizon-Vodafone deal and stood at ten billion dollars in 2014 from 60 billion dollars in 2013. It had exceeded 222 billion dollars in 2008, the report said.

Dr Zhan said the prospects look gloomy for the global economic situation and the road to investment growth is  bumpy. He said FDI has been at one of the lowest levels since the financial crisis of 2008.

Overall, FDI flows to developed countries dropped by 14 per cent, flows to transition economies halved while developing economies saw FDI reaching a new high with a global share of 56 per cent, the report said. Barring West Asia, East Asia, South East Asia and South Asia experienced increases in investment inflows. Cross-border M&As increased by 19 per cent and reached their highest levels since 2011, primarily due to restructuring deals and green-fields increased by three per cent in 2014.

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