India’s Economy Could Be The “Most Resilient” In South And South-West Asian Subregion : UN
India’s economy could prove to be the “most resilient” in the South and South-West Asian subregion over the long term, according to a UN study, which notes that positive but lower economic growth would continue to attract investment after the COVID-19 pandemic and the large market in the country. The ‘Foreign Direct Investment Patterns and Outlook in Asia and the Pacific 2020/2021’ report, compiled by the Economic and Social Commission for Asia and the Pacific (UNESCAP) of the United Nations, reported that inward FDI flows to South and South-West Asia decreased marginally by 2% in 2019, from USD 67 billion in 2018 to USD 66 billion in 2019.
The report, released last week, said the majority of these flows were destined for the Information and Communications Technology (ICT) and the construction of sub-sector. Regarding the ICT sector, the report said the investment to India has evolved from information technology services for Multinational enterprises (MNEs) to the thriving local digital ecosystem where many domestic players, especially in e-commerce, have attracted considerable international investment.
The geographical spread of FDI outflows from the subregion remained uneven, with just two countries (India and Turkey) accounting for the vast majority of outflows in 2019, it said. “As such, the slight increase in outward FDI was predominantly due to an increase in outflows from India, which accounted for 80 per cent of total outward investment from the subregion,” the report said, adding that in 2019, India invested $ 12.1 billion abroad, a 10 per cent increase compared with the previous year. The report noted that in the short term, both inflows and outflows from and to the subregion are expected to decline.
India has implemented several noteworthy investment policies and measures since 2019, which include the relaxation of limits to FDI in the insurance sector, liberalization of FDI rules which ended equity 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 approval route, it said.
Looking ahead, in the short-term investment in pharmaceutical manufacturing is forecast to decrease as many European and United States pharmaceutical companies may switch partly to more localised sourcing owing to supply-chain disruptions in the pharmaceuticals sector during COVID-19 pandemic. This will be important for pharmaceutical manufacturing hubs in the region, particularly in India. The report said that Asia-Pacific’s share in global FDI inflows dropped from 45 per cent in 2018 to 35 per cent in 2019, and its share in global FDI outflows decelerated from 52 per cent to 41 per cent.