Greenfield FD I may shrink for 2nd straight year in 2021
The value of greenfield foreign direct investment (FDI) into India contracted 19% to $24 billion in 2020 and the second wave of the pandemic may lead to a larger dip in 2021, UN Conference on Trade and Development (UNCTAD) said.
However, overall FDI inflows into India, including through mergers and acquisitions, increased 27% to $64 billion in 2020, pushed up by acquisitions in the information and communication technology (ICT) industry, making it the fifth-largest recipient in the world, the UNCTAD World Investment Report said.
“The second wave of the Covid-19 outbreak in India weighs heavily on the country’s overall economic activities. Announced greenfield projects in India contracted by 19% to $24 billion and the second wave in April 2021 is affecting economic activities, which could lead to a larger contraction in 2021. The outbreak severely hit main investment destinations” such as Maharashtra, home to one of the biggest automotive manufacturing clusters of Mumbai–Pune–Nasik–Aurangabad, and Karnataka, home to the Bengaluru tech hub, which faced another lockdown from April 2021, exposing the country to production disruption and investment delays, the report said.
The global economy is expected to overcome the debilitating effect of the pandemic in 2021, with developed economies such as the US, UK, and the European Union (EU) expected to record healthy growth benefiting from their rapid vaccination drives. However, India is expected to be a laggard, because of the second wave and the tardy pace of vaccination.
The Indian economy contracted 7.3% in FY21 for the first time in more than 40 years because of the first wave of the coronavirus pandemic. The second wave has had a less severe impact on the economy, but is expected to decelerate the growth momentum.
A majority of analysts have slashed their growth forecast for FY22 to less than 10%, expecting most of the direct impact of the second wave to be absorbed in the June quarter.
However, cautious consumer sentiment and sluggish rural demand are expected to hamper overall growth in FY22.
India’s strong fundamentals provide optimism for the medium term. “FDI to India has been on a long-term growth trend and its market size will continue to attract market-seeking investments. In addition, investment into the ICT industry is expected to keep growing. Export-related manufacturing, a priority investment sector, will take longer to recover, but government facilitation can help,” it said.