FDI flows into India nearly doubled in 2015: UNCTAD

Foreign Direct Investment flows into India nearly doubled in 2015 while the US emerged as the top host country for FDI last year, the UN's trade agency said on January 20. Global FDI flows "unexpectedly" increased significantly by 36 per cent, according to the annual report of the United Nations Conference on Trade and Development released.

"Global FDI unexpectedly increased significantly to USD 1.7 trillion and this is closer to the pre-crisis level and it is the highest since the global financial and economic crisis," said James Zhan, UNCTAD's Director of the Division on Investment and Enterprise.

Just ahead of the release of the report on global investment in 2015 and forecasts for 2016, Zhan said, "The bad news is that part of this global FDI are not really in the productive sector and is due for either inversion or corporate reconfiguration." Developing economies, as a whole, saw their FDI reaching a new high of USD 741 billion -- 5 per cent higher than 2014, the report said. Asia remained the largest FDI recipient region in the world, surpassing half a trillion US dollars and accounting for one-third of the global FDI flows, it said. The US bounced back as the top host country for FDI in 2015 with FDI worth USD 384 billion, the report said.

The US is followed by Hong Kong (USD 163 billion), China (USD 136 billion), Netherlands (USD 90 billion), the UK (USD 68 billion), Singapore (USD 65 billion), India (USD 59 billion), Brazil (USD 56 billion), Canada (USD 45 billion) and France (USD 44 billion) as the top 10 FDI host economies of the world. FDI flows to the developed countries bounced back sharply reaching their second highest level ever at USD 936 billion.

In Africa, Latin America as well as transition economies there was a decline in FDI last year partly because of stumbling commodity prices and regional instability. FDI flows are expected to decline in 2016, UNCTAD said. This reflects "the fragility of the global economy, volatility of global financial markets, weak aggregate demand and significant deceleration in large emerging economies", it said. Elevated geo-political risks and regional tensions could further amplify these economic challenges, the report said.

About USD 200-USD 250 billion of the USD 1.7 trillion global FDI was in the form of reconfiguration of business when companies restructure themselves by changing their headquarters from one region to another due to change in family ownership, avoiding tax or for political reasons. The assets of that company is then counted as FDI in the original country.

"If we discount this part of the FDI which reflects corporate reconfigurations then global FDI still increased between 15-17 per cent in 2015 and the main reason for this increase was the sharp growth of cross border mergers and acquisitions (M&As) which increased by 61 per cent," Zhan said. "FDI flows are not sufficient in productive sector. That's our major concern," the UN official said.

India's FDI investment increased from USD 33.9 billion to USD 59.4 billion which marks a 75 per cent increase while green field investments have increased from USD 25.4 billion to USD 64 billion recording an increase of 152 per cent, the report said. "Measures taken by the government to improve the investment climate have had an impact," the report stated.

"But bear in mind when we talk of greenfield investment we talk about announced deals and that means that actual FDI flows are in the future or in the making. And some of them may not realise also," Zhan said. However, globally cross-border M&As were largely responsible for the increase in FDI while greenfield investments registered little change in value terms -- 0.9 per cent -- from 2014. Greenfield investments still remain larger than cross border M&As -- this is because of the low level of M&A in 2014.

Foreign Direct Investment flows into India nearly doubled in 2015 while the US emerged as the top host country for FDI last year, the UN's trade agency said on January 20. Global FDI flows "unexpectedly" increased significantly by 36 per cent, according to the annual report of the United Nations Conference on Trade and Development released.

"Global FDI unexpectedly increased significantly to USD 1.7 trillion and this is closer to the pre-crisis level and it is the highest since the global financial and economic crisis," said James Zhan, UNCTAD's Director of the Division on Investment and Enterprise.

Just ahead of the release of the report on global investment in 2015 and forecasts for 2016, Zhan said, "The bad news is that part of this global FDI are not really in the productive sector and is due for either inversion or corporate reconfiguration." Developing economies, as a whole, saw their FDI reaching a new high of USD 741 billion -- 5 per cent higher than 2014, the report said. Asia remained the largest FDI recipient region in the world, surpassing half a trillion US dollars and accounting for one-third of the global FDI flows, it said. The US bounced back as the top host country for FDI in 2015 with FDI worth USD 384 billion, the report said.

The US is followed by Hong Kong (USD 163 billion), China (USD 136 billion), Netherlands (USD 90 billion), the UK (USD 68 billion), Singapore (USD 65 billion), India (USD 59 billion), Brazil (USD 56 billion), Canada (USD 45 billion) and France (USD 44 billion) as the top 10 FDI host economies of the world. FDI flows to the developed countries bounced back sharply reaching their second highest level ever at USD 936 billion.

In Africa, Latin America as well as transition economies there was a decline in FDI last year partly because of stumbling commodity prices and regional instability. FDI flows are expected to decline in 2016, UNCTAD said. This reflects "the fragility of the global economy, volatility of global financial markets, weak aggregate demand and significant deceleration in large emerging economies", it said. Elevated geo-political risks and regional tensions could further amplify these economic challenges, the report said.

About USD 200-USD 250 billion of the USD 1.7 trillion global FDI was in the form of reconfiguration of business when companies restructure themselves by changing their headquarters from one region to another due to change in family ownership, avoiding tax or for political reasons. The assets of that company is then counted as FDI in the original country.

"If we discount this part of the FDI which reflects corporate reconfigurations then global FDI still increased between 15-17 per cent in 2015 and the main reason for this increase was the sharp growth of cross border mergers and acquisitions (M&As) which increased by 61 per cent," Zhan said. "FDI flows are not sufficient in productive sector. That's our major concern," the UN official said.

India's FDI investment increased from USD 33.9 billion to USD 59.4 billion which marks a 75 per cent increase while green field investments have increased from USD 25.4 billion to USD 64 billion recording an increase of 152 per cent, the report said. "Measures taken by the government to improve the investment climate have had an impact," the report stated.

"But bear in mind when we talk of greenfield investment we talk about announced deals and that means that actual FDI flows are in the future or in the making. And some of them may not realise also," Zhan said. However, globally cross-border M&As were largely responsible for the increase in FDI while greenfield investments registered little change in value terms -- 0.9 per cent -- from 2014. Greenfield investments still remain larger than cross border M&As -- this is because of the low level of M&A in 2014.