India likely to be among top 20 global FDI sources by 2021

While the UN report said that FDI inflows rose 6 per cent in 2018 to $ 42 billion, the government’s own data for the entire FY19 period has shown that inbound equity investments declined for the first time in six years in FY19.

Illustration: Dominic Xavier/Rediff.com

The growing number of Indian companies eyeing international acquisitions is expected to make the country one of the top 20 global sources of foreign direct investment (FDI) soon, shows a report by a UN body.

India and the UAE - not traditionally in the top 20 outward investor countries - were also listed among the top 10 sources of FDI, for the 2019-2021 period, shows the report on international FDI flows by United Nations Conference on Trade and Development.

Drawing inference from a survey of investment promotion agencies globally, the report points out that India’s equity outflows stood at $ 11.03 billion in 2018.

Firms on shopping spree

The current year has seen a string of announcements by Indian majors, according to the India Brand Equity Foundation (IBEF), a trust established by the commerce department.

Infosys has announced the acquisition of 75 per cent stake in a subsidiary of Dutch bank ABN AMRO.

In March, Sun Pharmaceuticals also raised its stake in Russia’s PJSC Biosintez to 97 per cent.

Closer to home, Ashok Leyland has set up a new facility in Dhaka, in a joint venture with IFAD Autos.

The sales, service, and spare parts facility is spread over 138,000 square feet, and will cater to the entire range of Ashok Leyland vehicles.

In addition, auto components major JBM Group has purchased a majority stake in Linde-Wiemann, a German structural components producer.

OYO is planning to invest $1.2 billion in expansion across key markets, including China.

Falling inbound FDI

However, inbound FDI remains a different story.

While the UN report said that FDI inflows rose 6 per cent in 2018 to $ 42 billion, the government’s own data for the entire FY19 period has shown that inbound equity investments declined for the first time in six years in FY19.

Latest figures released last month by the Department for Promotion of Industry and Internal Trade (DPIIT) revealed that equity inflows reduced to $44.36 billion, down 1 per cent from $44.85 billion last year.

“Apart from a wait-and-watch policy adopted by global investors before the elections, volatility in the stock market as well as the overall weak health of the corporate sector may have scared off new inflows,” said Devendra Pant, chief economist at India Ratings.

India’s economy officially grew 6.8 per cent in FY19 - lowest in the Modi government’s first tenure.

Private investments remained subdued and demand - particularly in the rural sector - was muted.

However, investors may now rally around the massive mandate given to the incumbent government and investments may rise accordingly, Pant added.

In the subcontinent, FDI inflows to Bangladesh and Sri Lanka rose to a record $ 3.6 billion and $ 1.6 billion, respectively.

However, Pakistan witnessed a 27 per cent decline in investment to $ 2.4 billion.

In FY19, Singapore turned out to be the largest source of offshore funds, with FDI rising nearly 25 per cent to $ 16.22 billion.

This was followed by Mauritius at $ 6.8 billion and Japan at $ 2.98 billion.

India revised its tax treaty with Mauritius and Singapore, which has fully come into effect from the current financial year.