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India way behind China in FDI flows says World Investment Report

28 Jul 2022   |   3 min Read
കെ പി സേതുനാഥ്


The World Investment Report - 2022 brought out by the United Nations Conference on Trade and Development (UNCTAD) makes it clear that Atmanirbhar alone would not be sufficient to lift India to the envious position of a global investment hub. The report providing the investment trends after the worst of the pandemic shows that China remains the top destination of Foreign Direct Investment (FDI) in Asia. The much-hyped talk of reducing dependency on China to avoid supply-chain disruptions has failed to make any major dent in the ability of the Middle Kingdom to attract FDI inflows without hindrance.  A comparison in FDI inflows during 2019-21 between China and India would reveal the great gap that exists between the two major Asian powers. The FDI inflows went up 20.3 percent from 14.5 percent in China during 2019-21 while that of India came down to 2.8 percent from 3.4 percent. China received USD 181 billion FDI in 2021 while the flow to India was only USD 45 billion.      

The data on FDI inflows shows that India has a long way to go in realizing the dream of emerging as a manufacturing hub for the global markets. The FDI flow to the whole of South Asia shrunk compared with the other regions in Asia. East Asia and Southeast Asia have shown a 16 and 44 percent increase in FDI in 2021 compared with 2020 while in South Asia it fell by 26 percent. South Asia accounted for USD 52 billion in 2021 compared with USD 71 billion in the previous year. FDI flow to West Asia and Central Asia moved up by 59 and 12 percent in 2021 compared with 2020.

The fall in FDI flow to India in 2021 doesn't augur well for the growth prospects of the country in the year ahead with the fear of recession looming large over the global economy. The World Investment Report has highlighted the likely pitfalls facing the global economy in the wake of the ongoing war in Ukraine.   

Representational image: wiki commons

"In 2022, FDI flows to developing economies are expected to be strongly affected by the war in Ukraine and its wider ramifications, and by macroeconomic factors including rising interest rates. The main drivers of a possible contraction of FDI are the impact of higher energy prices on domestic demand; high food prices, which can lead to political instability; and tighter financial conditions. Fiscal space in many countries will be significantly reduced, especially in oil- and food-importing developing economies". The road ahead appears not very promising, if the above observation is any indication.

Apart from keeping a close tab on FDI trends the policymakers in India also needed to address some of the homegrown issues such as demonetization and GST implementation.  Demonetization, GST, and pandemic combined have dealt a severe blow to the unorganized sector which according to some economists contributed 31 percent of the country's GDP. The sector has an important bearing in generating employment at the grassroots as well as keeping an overall dynamism in the economy needed to be resurrected on an urgent basis.  The policymakers, unfortunately, remain clueless on how to infuse fresh life into the unorganized sector as most of the policy prescriptions tended to increase the burden of the unorganized sector instead of handholding it to scale higher growth and prosperity. The rhetoric of Atmanirbhar alone is not sufficient for scaling such heights.

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