India falls in global FDI ranking; inflows drop 43% to $28 billion

India fell seven spots in the global foreign direct investment (FDI) ranking to 15 as inflows declined 43% to $28 billion in 2023. The country saw FDI inflows worth $49 billion in the previous year.

South Asia registered a sizeable decline in FDI, especially led by India. The decline in FDI inflows to South Asia is mostly explained by a 43% decrease in India, while flows to other countries remained relatively stable, according to the latest World Investment Report released by UN Trade and Development (UNCTAD).

Merger and acquisition (M&A) sales, which usually constitute 10-15% of FDI in developing Asia, declined by almost $30 billion in 2023 to $57 billion, representing about half of the total drop in FDI inflows to the region, the report says. China and its Hong Kong Special Administrative Region (SAR) continue to be the largest investors in the region by total FDI stock, followed by the United States, Japan, and Singapore.

FDI flows to developing countries fell by 7% to $867 billion last year, reflecting an 8% decrease in developing Asia.

On the other hand, flows to developed countries were strongly affected by financial transactions of multinational enterprises, partly due to efforts to implement a global minimum tax rate on the profits of these corporations. Inflows to most parts of Europe and North America were down by 14% and 5%, respectively.

In 2023, global foreign direct investment (FDI) decreased by 2% to $1.3 trillion. When excluding the impact of a few exceptions, the report reveals a sharper decline of over 10% in global foreign investments for the second consecutive year. This decline is driven by increasing trade and geopolitical tensions in a slowing global economy.

While the prospects for FDI remain challenging in 2024, the report says that “modest growth for the full year appears possible”, citing the easing of financial conditions and concerted efforts towards investment facilitation – a prominent feature of national policies and international agreements.

With the global push to attract and retain financial flows, online information portals and single windows have proliferated to foster a conducive business and investment climate.

For developing countries, digitalisation not only provides a technical solution, but also a stepping stone for wider digital government implementation to address underlying weaknesses in governance and institutions which often hinder investment.

“Investment is not just about capital flows; it is about human potential, environmental stewardship and the enduring pursuit of a more equitable and sustainable world,” says UN Trade and Development Secretary-General Rebeca Grynspan.

Net foreign direct investment (FDI) in India, which is the difference between inflows and outflows, plummeted by 62.14% to $10.6 billion in the financial year ending March 31, 2024 (FY24), from $28 billion the previous year, according to Reserve Bank of India (RBI). This marks the lowest level of net FDI since 2007, largely due to increased repatriation of capital.