UN: India’s economy will prove to be ‘most resilient’ in sub region over long term

UN: India’s economy will prove to be ‘most resilient’ in sub region over long term

India’s economy could demonstrate to be the “most resilient” in the subregion of South and South-West Asia over the extended term, according to a report by the UN, which says an accurate but lower economic growth post-COVID-19 pandemic and the country’s large market will remain to attract investments.

The paper titled ‘Foreign Direct Investment Trends And Outlook In Asia And The Pacific 2020/2021’, and organized by United Nations Economic and Social Commission for Asia and the Pacific (UNESCAP), declared that inward FDI continues to South and South-West Asia slightly decreased by 2 percent in 2019, from USD 67 billion in 2018 to USD 66 billion in 2019.

The majority, however, was mainly driven by India, which estimated 77 percent of the entire inflows to the subregion and received USD 51 billion in 2019, up 20 percent from the past year.

The report, published last week, said the preponderance of these flows were designed for the Information and Communications Technology (ICT) and the development of sub-sector.

Concerning the ICT sector, the report said the property to India has evolved from learning technology services for Multinational enterprises (MNEs) to the thriving local digital ecosystem where many private players, especially in e-commerce, have attracted significant international investment.

The report added that FDI currents from South and South-West Asia increased for the fourth following year, simply growing from USD 14.8 billion in 2018 to USD 15.1 billion in 2019.

The geographic spread of FDI outflows from the subregion continued uneven, with just two countries (India and Turkey) considering for the vast majority of outflows in 2019, it said.

“As such, the slight improvement in outward FDI was predominantly due to an increase in outflows from India, which estimated for 80 percent of total outward investment from the subregion,” the report said, replying that in 2019, India spent USD 12.1 billion abroad, a 10 percent increase compared with the preceding year.

The report noted that in a short time, both inflows and outflows from and to the subregion are required to decline.

In the first three semesters of 2020, the value of greenfield FDI inflows declined by 43 percent related to the same period last year, warning of a reversal of the growth trend in the subregion.

Most of the greenfield issues (87 percent) were intended for India, although the overall greenfield inflows to the country diminished by 29 percent. Equally, FDI from India is predicted to decline in 2020, with the largest MNEs revising their profits down by 25 percent in early 2020 due to the consequences of the pandemic.

“However, India’s economy could determine the most resilient in the subregion over the long term. FDI inflows have been constantly increasing and actual, albeit lower, economic growth after the pandemic, and India’s large business will continue to attract market-seeking investment,” the statement said.

India’s fast-growing telecom and digital period, in particular, could see a faster rebound as global venture capital firms and technology businesses continue to show interest in the country’s market through dividends, it said.

It noted that Facebook and Google’s venture in Jio Platforms in 2020 worth USD 5.7 billion and USD 4.5 billion apiece were testimonials to this trend.

Estimates suggest that by 2025, core digital divisions such as IT and business process administration, digital communication services, and electronics manufacturing could increase in size.

“Also, the pandemic has only further enhanced the tendency of many sectors such as agriculture, education, energy, financial services, logistics to digitalize, as COVID-19 has launched many individuals and businesses to adopt digital solutions and methods,” the report said.

India has achieved several noteworthy investment management and measures since 2019. Some of them include the recreation of limits to FDI in the insurance sector, liberalization of FDI rules which ended ownership caps in several sectors including coal and lignite mining, contract manufacturing and single-brand retail trading, and increase in the ceiling for FDI into the defense sector to 74 percent via automatic consent route, it said.

In addition to these strengths, and direct response to the COVID-19 pandemic, the government also launched intensified FDI screening procedures from neighboring countries, including Afghanistan, Bangladesh, China, and Nepal, it stated.

The report said that as in previous years, inflows of greenfield ventures have been unevenly spread across the Asia-Pacific region. In 2019, Vietnam received the second-largest share of internal greenfield investment (11 percent), followed by India (10 percent), and Sri Lanka (8 percent).

Looking ahead, in the short-term financing in pharmaceutical manufacturing is forecast to weaken as many European and United States pharmaceutical companies may change partly to more localised sourcing owing to supply-chain disruptions in the pharmaceuticals sector during the COVID-19 pandemic.

“This will be important for pharmaceutical production hubs in the region, particularly in India,” the report said.

The report stated that Asia-Pacific’s part in global FDI inflows dropped from 45 percent in 2018 to 35 percent in 2019, and its part in global FDI effluences decelerated from 52 percent to 41 percent.