IMPACT OF FOREIGN DIRECT INVESTMENT FLOWS

 Initially multi national enterprises started functioning from developed countries like USA, UK, Germany and Japan operating in both developed and developing countries across all continents  in sectors including mining, plantations, refining, shipping, banking, insurance, manufacturing etc.In due course transnationalisation of production or investment  of MNEs became a reality and the original or parent company became irrelevant and disappeared for instance a UK company transformed in to an Indian company when Tatas acquired Tetley group in 2000.Similarly manufacturing of Apple's Ipad involves assembling 44 different components across different countries and continents of the world. Significantly manufacturing of MNEs varied from light potato chips to strategic semiconductor chips. Not only foreign Direct Investment became an integral part of global supply chains but also their clout enabled them to influence the policy decisions of national governments and at times even resorting to aid  to unseat established Governments.

Foreign Direct Investment (FDI) refers to investment made by a company or individual in another country to fulfill it's business interest by controlling ownership and operation.  FDI  can bring knowledge, skills and technology.FDI may take different forms  ranging from acquiring shares, establishing subsidiary, or  a joint venture, providing loans or technology transfer.According to IMF FDI refers to an investment made to acquire lasting or long-term interest in enterprises operating outside of the economy of the investor.....which could be a foreign person. Company,or group of entities seeking to control, manage or have significant influence over the foreign enterprises.The main components of foreign direct investment are equity capital, reinvested earnings and intra company loans. Based on motives FDI is  classified into market seeking, resource seeking, strategic asset seeking, and  efficiency seeking FDI.   Based on nature of investment FDI is generally classified into  1.Greenfield investment which create new production capacity, jobs, tranfer of technology which lead to linkages to global market. 2,Mergers and acquisitions when the assets and operations of firms from different countries are combined  to establish  a new entity. 3.Cross border acquisitions occur  when control of assets and operations are transferred from  a local to foreign company with the local company becoming the affiliate of the foreign company. While investment in the  same industry abroad as the firm operates in at home is termed as horizontal FDI Vertical FDI refers to generally trade  diversionary aspects of regional integration resulting in more value added manufacturing.

 The 2023 World Investment Report published by UNCTAD(United Nations Conference on Trade and Development) focused particularly on "Investing in sustainable Energy for all".Even though energy is essential to every aspect of our life, millions of people across globe live without electricity or access to safe and reliable energy sources.Hence investment in renewable energy in developing countries are essential not only to rectify the energy gap but also to combat global warming .According to the report FDI remained gloomy last year with a cascading crisis of health, climate change, and economic shocks leading to economic uncertainty around the globe.Similarly price rise,fears of recession and turbulence in financial markets put hold on investment plans to great extent. In this scenario after a sharp decline in 2020 and a strong rebound in 2021 global FDI decreased by 12% in 2022 to$1.3 trillion primarily due to geopolitical tensions triggered by Ukraine war high food and energy prices.The decline in FDI during 2022 was largely driven by financial transactions of multinational companies based in developed countries, where FDI fell by 37% to $378 billion. largely in Europe and North America with 26% decline in US to $285 billion whereas it decreased by 20% to $53 billion in Canada.On the contrary Sweden witnessed more than twofold increase in FDI inflow to $46billion, France 18% increase ($36 billion).

Developing countries recieved more FDI than developed economies in 2022 accounting for half of global inflows in Asia with $662 billion. India and ASEAN were most resilient destinations of FDI with robust increase of 10% and 5% respectively.India's rank  in FDI inflows remained at 8th position for the last two years continuously . Major shares of FDI inflows to India comes from Singapore,USA, Mauritius, Netherlands and Switzerland respectively.Generally apprehensions are raised about the dubious operations of shell companies operating from Mauritius, Cyprus,UAE and Singapore with scant regard for three basic principles of corporate governance namely Integrity and fairness transparency and disclosures and accountability and responsibility.Major beneficiaries of FDI inflows to India are states like Karnataka , Maharashtra, Delhi.Tamil Nadu and Haryana in sectors ranging from Information technology (software and hardware) finance including banking and insurance, business process outsourcing, automobile industry, trading and infrastructure.More significantly nations like Brazil and and Australia managed to improve their position with  inflows of $86 billion and $ 52 billion respectively. It has been observed that inflows to India were particularly beneficial to sectors like Electronic Vehicles, battery, research and development as well.China ranked world's second largest FDI recipient and registered 5% growth as against drop in FDI inflows to Gulf region. While many smaller developing countries witnessed stagnation in FDI inflows the flow to less developed countries decreased. As far as the cause of Investing in Sustainable Energy is concerned developing countries badly require investment in renewable energy to the extent of $1.7 trillion per yeari instead only recieved marginal investment in clean energy.It may be noted here that the investment gap for all the UN Sustainable Development Goals (SDGs)has risen to above $4trillion per year from $2.5 trillion in 2015.The biggest gaps are visible in energy, water and transport infrastructure. However India remains as the third largest recipient of greenfield investment. 

Analysis of FDI outflows from developed economies to abroad also showed  decrease by 17% to $1 trillion.While outward investment from European Multi National Enterprises (MNE) fell by 61 % to $224 billion in 2022,MNEs from USA increased their investment outflows by 7% to $373 billion, and Cross border mergers and acquisitions (M&A)  recorded 21% increase to. $273 billion in US.Biggest beneficiaries were in Information, communication and administrative and support services . FDI outflows from Japan rose by 10% to$161 billion making it the second largest investor country . Other countries like Australia,Korea and UK also added to Investment abroad by way of cross border acquisitions with an increaed share assigned for green field project.Value of FDI outflows from MNEs of developing economies declined by 5% to$ 459 billion where China's share fell by 18% to $147 billion Aftermath of liberalisation in India witnessed a good number of Indian companies are investing in different sectors across different continents of the world.However FDI outflows of Indian MNEs fell by 16% to $42 billionin 2022.Two of the largest 'geen field projects were in renewable energy with Acme group announcing $13 billion plant in Egypt to produce 2.2 billion tonnes of green hydrogen annually.However FDI outflows from Latin America and the Carribbean continued its upward trend to $59 billion in2022.

In nutshell FDI flows are major drivers of economic growth and very important source of non debt finance to developing countries like India in particular.However there is stiff competition from other emerging Asian countries like China, Vietnam Indonesia and even Bangladesh in attracting FDI inflows. They are offering competitive advantages comprising of lower costs of production, better infrastructure,logistics, power, Telecommunications and other investor friendly policies. After simplifying and streamlining regulatory processes they implement either single window clearance system or a digital platform for regulating FDI flows. Our  dependence on API (Active Pharmaceutical Ingredients) solar equipment, electronics,  IT and mobile equipment etc from a broad especially from China still persist as a major challenge. However dependence on semiconductors are addressed currently on apriority basis. The road towards green renewable energy required concerted effort for scaling up deployment of renewable energy technologies and investing in clean energy innovation. Even though our digital revolution is well acclaimed across the globe and many of our nationals are employed in top positions of well known global IT giants, Indians are largely reluctant to take up innovations independently in their own area of specialisation.Even many of the start-ups/ Unicorns after successfully launching it  they tend to sell it to foreign investors completely. Our rich genetic biodiversity,traditional knowledge and traditional systems of medicine offers tremendous potential for innovation, investment in different products technologies,creation of a intellectual property rights (IPR)and claiming benefits from IPR.. In any case real flows of foreign direct investment (FDI) will continue to benefit our growth provided infrastructure development,PLI scheme , digital revolution, green technologies, green energy start ups, Unicorns, upskilling and reskilling of human resources etc are properly streamlined and effectively coordinated.