In News:

The Global Investment Trends Monitor Report 2024, released by the United Nations Conference on Trade and Development (UNCTAD), highlights a concerning decline in international project finance and Foreign Direct Investment (FDI), particularly in developing economies. This has significant implications for sustainable development, especially in emerging economies like India.

Key Findings from the UNCTAD Report (2024)

Global FDI Trends:

• Global FDI flows, after adjusting for conduit economies, fell by 8% in 2024, despite a nominal increase to USD 1.4 trillion.
• Developed economies witnessed a 15% drop in FDI (excluding conduit economies like Ireland and Luxembourg), while developing economies saw a 2% decline.
• The decline threatens long-term investment in infrastructure, renewable energy, and other SDG-aligned sectors.

Project Finance and Greenfield Investment:

• International project finance declined by 29% in developed and 23% in developing economies.
• In terms of value, developing economies faced a sharper fall of 33%.
• Key countries like India, China, Brazil, Indonesia, and Mexico reported steeper declines than the global average.
• Greenfield investments fell 6% in developing regions, with Africa and Asia being worst affected.

Sectoral Impacts:

• Investments in SDG-related sectors (e.g., water, sanitation, agrifood systems, and infrastructure) declined by 11%.
• International renewable energy finance fell 16%, with North America (-22%) and developing Asia (-18%) seeing notable contractions.
• Africa was the only region to witness an 8% increase in renewable energy project finance.

India’s FDI Landscape: Trends, Opportunities, and Challenges

Recent Performance:

• Between April 2000 and September 2024, India received over USD 1 trillion in cumulative FDI.
• From 2014 to 2024, India attracted USD 667.4 billion, a 119% increase over the previous decade.
• In 2024, India’s greenfield projects grew, but international project finance fell 23% in number and 33% in value.

Regulatory Framework:

• FDI is regulated under the Foreign Exchange Management Act (FEMA), 1999, administered by DPIIT, Ministry of Commerce and Industry.
• Prohibited sectors: Atomic energy, betting, lotteries, chit funds, tobacco, and real estate (excluding construction development).

Outlook for 2025 and Strategic Opportunities

Global FDI Projections:

• UNCTAD anticipates moderate global FDI growth in 2025.
• Regions like ASEAN, Eastern Europe, and Central America may benefit from supply chain realignments.
• India is projected to see a moderate rise in FDI, aided by:
  • Improved financing conditions,
  • Mergers and acquisitions,
  • Ongoing policy reforms.

Key Growth Sectors:

• High potential in AI, cloud computing, cybersecurity, electric vehicles, and green hydrogen.
• FDI will be influenced by geopolitical dynamics, interest rates, GDP growth, and technological transitions.

FDI in India: Opportunities and Challenges

Opportunities:

• Large consumer base (1.4 billion population) and young workforce (65% under 35).
• Government schemes like Make in India and Atmanirbhar Bharat incentivize foreign investment.
• Strategic location positions India as a gateway to South Asia, the Middle East, and Southeast Asia.

Challenges:

• Regulatory complexity, including retrospective taxation and bureaucratic delays.
• Infrastructure deficits, particularly outside urban hubs.
• Rigid labour laws and inconsistent policy enforcement.

Investor Expectations:

• Technology transfer in priority sectors.
• Employment generation to absorb India’s growing labor force.
• Sustainable investments in line with India’s climate commitments under the National Action Plan on Climate Change.