India’s foreign direct investment is likely to cross $60 billion this year on favourable policy environment even as the FDI flows globally are set to witness a decline, says a UN economist.
“India witnessed a rise of about 28 per cent in FDI to $44.20 billion in 2015. We expect FDI to cross $60 billion in 2016,” said Nagesh Kumar, Economist & Head, UNESCAP’s South and South-West Asia Office, at the release of an UNCTAD report.
In India, the report said, the large increase of announced greenfield investments in manufacturing industries may provide further impetus to FDI this year.
New liberalisation steps by the government contributed to attracting FDI in all quarters last year, which made India the fourth largest recipient in developing Asia and the 10th in the world, it said.
Top sources of equity investment in India were Singapore, Mauritius, the US, the Netherlands, Japan, Germany, the UK, China, Hong Kong and the United Arab Emirates.
Singapore and Mauritius alone accounted for nearly 60 per cent of total FDI last year, it said, adding that India is also maintaining FDI inflows from developed country sources, especially Europe and the US.
The outward FDI from India – the dominant investor in the sub-region – dropped by more than one-third to $7.5 billion, which resulted in an overall 36 per cent decline of outflows from South Asia.
“The decline in commodity prices and problems of over capacity in industries such as steel have negatively affected some of the largest Indian conglomerates’ motivation and ability to invest abroad,” the report said.
For the Asian region, the United Nations Conference on Trade and Development (UNCTAD) report forecast a decline in FDI flows by about 15 per cent in 2016.
“Hindered by the current global and regional economic slowdown, FDI inflows to developing Asia are expected to decline in 2016 by about 15 per cent, reverting to their 2014 level,” it said.
“However, FDI flows to some Asian economies such as China, India, Myanmar and Vietnam are likely to see a moderate increase in 2016,” said the report.
The overall global FDI in 2016 is also expected to decline by 10-15 per cent due to weak economic prospects.
The report said: “The expected decline of FDI flows in 2016 reflects the fragility of the global economy, persistent, weakness of aggregate demand, effective policy measures to curb tax inversion deals and slump in multi national enterprises.”
It sees world economy continuing to face major headwinds. However, FDI flows may resume in 2017.
“Over the medium term, FDI flows are projected to resume growth at 5-10 per cent in 2017 and surpass $1.8 trillion in 2018, reflecting the projected increase in global growth.”
Global GDP is expected to expand by only 2.4 per cent, the same relatively low rate as in 2015, it added.