IANS | 02 Apr, 2024
The US and a select set of developed markets and emerging markets
seem to have benefited from a sharp decline in the share of FDI inflows
into China, Kotak Institutional Equities said.
China has lost 9.30 pps in the share of global FDI over CY2019-23, while the US has gained 14.3 pps over the same period.
Other major countries witnessing an increasing share of FDI inflows are Brazil, Canada, Japan, Korea, Mexico and Poland.
The
US has seen a massive increase in FDI in the manufacturing sector in
recent years, driven by diversification (near-shoring and on-shoring) in
supply chains, geopolitical tensions between the US and China, large
incentives for investment under the Inflation Reduction Act and CHIPS
Act and large investments in AI, Kotak Institutional Equities said.
The
recent weakness in gross FDI inflows to India is also symptomatic of a
slowdown in global capital flows since CY2021, the brokerage said.
Increasing
geopolitical tensions between a US-led ‘economic’ bloc and China,
government-funded industrial policies for strategic sectors and
tightening global central bank liquidity were the key contributors to
the recent weakness in capital flows. Electricity, electronics and IT
& communication continue to attract strong investment interest
globally, although investments seem to be trailing announcements in
recent years, it added.
India has taken significant positive steps
in the past five years through various reforms and incentive measures
but it is yet to see a meaningful increase in investments over this
period. “Nonetheless, we remain hopeful that investments in certain
sunrise sectors will accelerate in the coming years. In our view, it is
important for India to focus on the domestic market while increasing its
presence in higher value-added goods for exports,” the brokerage said.