FDI inflow into India nosedives in 2023: report

Foreign direct investment (FDI) inflow into India nosedived by 43% last year to $28 billion amid a global decline of 2%, a report released by the United Nations Conference on Trade and Development (UNCTAD) said.

In 2022, the country saw a 10% year-on-year increase in FDI inflows to $49 billion.

The sharp drop in investments last year dragged India to the 15th spot on global FDI inflows from the eighth place a year ago, according to the 2023 World Investment Report.

India has, however, managed to maintain its place in the top five countries receiving FDI for greenfield projects and international project finance deals.

With tight funding conditions last year, the number of international project finance deals that indicate the flow of cross-border funds for infrastructure and public services such as power and renewable energy fell by a quarter. This led to a 10% reduction in investment in sectors linked to the Sustainable Development Goals (SDGs), most notably impacting agrifood systems and water and sanitation. These sectors registered fewer internationally financed projects in 2023 than in 2015, when the goals were adopted.

Among the top 20 countries reporting the largest outflow of FDI, India was ranked 20th with a $15 billion FDI outflow in 2023, up 15.38% from $13 billion in the previous year.

Among the 20 largest economies by outward FDI flows, nine countries in Asia account for almost half, with the relative ranks of India and Taiwan both showing a rise in 2023.

The US and Japan’s outward FDI increased by 10% and 14%, respectively, contrary to the overall trend for developed countries.

Outward investment from European countries fell by 11%.  FDI outflows from France increased by about one-third to $72 billion from $53 billion in 2022.

Among the top five destinations for greenfield projects, starting from scratch with no infrastructure or resources, India is ranked fourth with 1,058 projects, next to the US (2,152), UAE (1,323), and the UK (1,058). Germany is fifth, with 1,036 greenfield projects.

India ranked second in international project finance, receiving funding for 163 large public infrastructure projects. The US led with 334 projects, followed by Italy (116), Spain (107), and the UK (104).

Despite a decline in 2023, FDI flows to developing Asia remained high at $621 billion, making it the largest recipient and accounting for nearly half of global inflows, according to the report.

East and Southeast Asia led within the region. Although FDI to West Asia fell moderately and South and Central Asia saw notable decreases, particularly in India and Kazakhstan, M&A sales in developing Asia dropped by nearly $30 billion to $57 billion, contributing to half of the region’s total FDI decline.

East Asia experienced a significant reduction in FDI, with China seeing a downturn after a decade of growth. However, Southeast Asia maintained stable inflows on strong economic performance and deep global value chain linkages.

China, as the world’s second-largest FDI recipient, saw a rare decline in inflows, while Southeast Asia remained steady. The report highlighted resilient industrial investment in Asia, despite a global slowdown in project finance.

Globally, about two-thirds of developed and half of developing economies reported FDI declines. The US continued as the top recipient, capturing nearly a quarter of the total, with China and Hong Kong combining for an additional 21%.

Among the top 20 host economies, France, Australia, China, the US, and India saw the largest drops, whereas Singapore recorded a significant increase.