The United Nations said on Sunday that Foreign Direct Investment (FDI) into India rose by 13% in 2020, boosted by interest in the digital sector, reported PTI. The UN said that while  fund flows "declined most strongly" in major economies such as the UK, the US and Russia due to the COVID-19 pandemic, India and China "bucked the trend".

The United Nations Conference on Trade and Development (UNCTAD) issued an 'investment trends monitor.' It stated that global FDI collapsed in 2020 by 42% to an estimated $859 billion from $1.5 trillion in 2019.

The drop is 30% below the investment trough that followed the 2008-2009 global financial crisis and was last seen in the 1990s.

Also read: Global FDI flows to remain weak this year, real recovery to start in 2022: UN report

Fund flows fell by 69% to an estimated  $229 billion in developed countries. The decline in FDI inflows was concentrated in these countries. FDI in India, however, rose by 13% due to investments in the digital sector.

The report said, "China was the world's largest FDI recipient, with flows to the Asian giant rising by 4%t to $163 billion. India, another major emerging economy, also recorded positive growth (13%), boosted by investments in the digital sector."

The report added that "in relative terms, FDI flows declined most strongly in the UK, Italy, Russia, Germany, Brazil and the US due to the dramatic impact of COVID-19. India and China bucked the trend."

According to the report, FDI in South Asia rose by 10% to $65 billion. India's 13% rise in FDI saw the total foreign investments for 2020 touch $57 billion. It also noted that acquisitions in India's digital economy was the largest contributor to this rise.

Cross-border merger and acquisition (M&A) sales grew 83% to $27 billion, the report said, citing social networking giant Facebook’s acquisition of 9.9% stake in Reliance Jio platforms, via a new entity, Jaadhu Holdings LLC. Infrastructure. Similarly deals in the energy sector propped up M&A values in India, it said.

Further, India and Turkey are attracting record numbers of deals in information consulting and digital sectors, including e-commerce platforms, data processing services and digital payments.

Despite projections for the global economy to recover in 2021, the UNCTAD expects FDI flows to remain weak due to uncertainty over the evolution of the COVID-19 pandemic.

The organisation has projected a 5% to 10% FDI slide in 2021 in last year’s World Investment Report.

“The effects of the pandemic on investment will linger,” said James Zhan, Director of UNCTAD, investment division.

“Investors are likely to remain cautious in committing capital to new overseas productive assets," Zhan said.

According to the report, the decline in FDI in 2020 was concentrated in developed countries, where flows plummeted by 69% to an estimated $229 billion.

Flows to North America declined by 46% to $166 billion, with cross-border mergers and acquisitions dropping by 43%. Announced greenfield investment projects also fell by 29% and project finance deals tumbled by 25%.

Greenfield investment is a kind of FDI, in which the parent company creates a subsidiary in the host country and builds its operations from the ground up.

The United States recorded a 49% drop in FDI, falling to an estimated $134 billion. The decline took place in wholesale trade, financial services and manufacturing.

Cross-border M&A sales of US assets to foreign investors fell by 41%, mostly in the primary sector.

On the other side of the Atlantic Ocean, investment in Europe dried up as well. In the United Kingdom, FDI fell to zero, and declines were recorded in other major recipients.

Looking ahead, the FDI trend is expected to remain weak in 2021.

Data on an announcement basis, an indicator of forward trends, provides a mixed picture and point at continued downward pressure.

Sharply lower greenfield project announcements (-35% in 2020) suggest a turnaround in industrial sectors. Similarly, the 2020 decline in cross-border M&As (-10%) was cushioned by higher values in the last part of the year.

Looking at M&A announcements, strong deal activity in technology and pharmaceutical industries is expected to push M&A-driven FDI flows higher.

For developing countries, the trends in greenfield and project finance announcements are a major concern, the report said.

Although overall FDI flows in developing economies appear relatively resilient, greenfield announcements fell by 46%and international project finance by 7%.

These investment types are crucial for productive capacity and infrastructure development and thus for sustainable recovery prospects.

Risks related to the latest wave of the pandemic, the pace of the roll-out of vaccination programmes and economic support packages, fragile macroeconomic situations in major emerging markets, and uncertainty about the global policy environment for investment will all continue to affect FDI in 2021, the report said.

The coronavirus has killed over 2.1 million people, along with over 99 million confirmed cases, across the world so far.