Higher the FDI inflows, better the prospects to become an economic powerhouse

UNCTAD’s World Investment Report 2023 reveals a widening annual investment deficit that developing countries face as they work to achieve the Sustainable Development Goals (SDGs) by 2030.The gap is now about $4 trillion per year – up from $2.5 trillion in 2015 when the SDGs were adopted. The report shows that global FDI fell 12% in 2022 and analyses how investment policy and capital market trends impact investment in the SDGs, particularly in clean energy. It highlights that developing countries need renewable energy investments of about $1.7 trillion each year but attracted only $544 billion in clean energy FDI in 2022. Although investments in renewables have nearly tripled since 2015, most of the money has gone to developed countries. The report calls for urgent support to developing countries for their transition to clean energy. It proposes a compact setting out priority actions, ranging from financing mechanisms to investment policies, to ensure sustainable energy for all. A significant increase in investment in sustainable energy systems in developing countries is crucial for the world to reach climate goals by 2030, says UNCTAD Secretary-general, Rebeca Grynspan.

After a strong rebound in 2021, global FDI fell by 12% in 2022 to $1.3 trillion, mainly due to overlapping global crises like the war in Ukraine, high food and energy prices, and soaring public debt. The decline was felt mostly in developed economies, where FDI fell by 37% to $378 billion. But flows to developing countries grew by 4% – albeit unevenly. On a positive note, greenfield investment project announcements were up 15% in 2022, growing in most regions and sectors. Industries struggling with supply chain challenges, including electronics, semiconductors, automotive and machinery, saw a surge, while investment in digital economy sectors slowed. International investment in renewable energy generation, including solar and wind, also continued to grow – but at just eight per cent than the 50% growth recorded in 2021.

Notably, projects announced in battery manufacturing tripled to more than $100 billion in 2022. The report also notes that major oil companies are gradually selling fossil fuel assets – at a rate of about $15 billion per year – mostly to unlisted private equity firms and smaller operators with lower disclosure requirements. This calls for new deal making models to ensure responsible asset management. India continued to be a major destination of foreign direct investment, having received a total FDI inflow of US$70.9 billion for the financial year 2022 to 2023. According to Reserve Bank of India's data in last month’s bulletin, FDI in India was $25.53 billion and outflows were $10.11 billion in April 2023-January 2024. In the same period last year, FDI inflows stood at $36.75 billion, while outflows reached $11.75 billion. The “state of economy” report in the RBI’s monthly bulletin noted that manufacturing, computer services, electricity, and other energy sectors, financial services, and transport accounted for about two-thirds of the FDI equity inflows in the 10 months of the financial year. Around 80 per cent of the equity flows were received from Singapore, Mauritius, the US, the Netherlands, Japan, and the United Arab Emirates.