India's greenfield FDI shrivels to 19 percent lower than 2019, to contract further in 2021
image for illustrative purpose
According to the UNCTAD World Investment Report 2021, global FDI flows reduced to $1 trillion in 2020, 35 percent lower than the pre-pandemic level. Moreover, greenfield investment announcements plummeted by 44 percent in value, and international finance by 53 percent for developing economies, compared to 16 percent and 28 percent, respectively, for the developed economies.
These figures show that developing economies faced the brunt of the pandemic since greenfield FDI in these economies is mainly aimed at infrastructure development and other productive aspects.
The story in India is no different, where greenfield FDI shrivelled to $24 billion in 2020, 19 percent lower than 2019. Greenfield FDI is further expected to contract in 2021 due to the COVID-19 second wave. Given the severity of the pandemic, which affected global FDI, focus should shift towards reviving the FDI flows amidst rising levels of vaccination.
The pandemic severely affected multinational firms, given their extensive involvement in global value chains. Hence, building resilient supply chains remains at the top of the agenda for firms and policymakers.
In order for the economy to recover, it is crucial to prioritise investment in sustainable recovery, which condones a strategy where investment is directed towards improving productive capacity. In this regard, the UNCTAD report highlights a positive correlation between the Productive Capacities Index (PCI) and the FDI stock. Hence, FDIs in productive capacity enhances investment, especially in developing countries, due to the flow of knowledge, technical know-how, and improved access to global networks.
The importance of investment in SDG projects has resulted in application of sustainability in the finance sector. Sustainable finance has largely transpired through specific funds and indexes with objectives of sustainability. For instance, in 2020, the $3.2 trillion SDG-related investment consisted of 53 percent of sustainable funds, over 30 percent in green bonds, and investments in social bonds and mixed-sustainability bonds.
Sustainability-themed funds have managed to recover quickly within the first half of 2020, with the inflow of funds amounting to $164 billion, and estimated to reach over $300 billion full-year on. The rapid surge of these funds highlights their popularity and of them as a viable investment option. In this regard, leveraging capital markets for sustainable development has become the key.
