India witnessed robust investment performance in 2023, helped by government infrastructure projects and multinational investments, the United Nations World Economic Situation and Prospects (WESP) 2024 report revealed.
Launching the report, the UN said that while India logged a strong investment performance, China saw investment projects suffer from headwinds from a struggling real estate sector. The study found that investment remained more resilient in developing economies, rather than in developed ones, reported PTI.
The report further found that investment remained strong in South Asia, specifically India, in 2023. “Investment prospects in China face headwinds from a struggling property sector, though government-led infrastructure investments are partially offsetting the shortfall in private investments. In contrast, India registered strong investment performance in 2023, driven by government infrastructure projects and multinational investments,” it noted.
In the developing areas, Africa, Western Asia, Latin America, and the Caribbean continue to face challenges such as increased borrowing costs which further obstruct investment growth, the report stated. It added that India is gaining from increasing interest from multinationals, that view the nation as a crucial alternative manufacturing base in terms of developed economies’ supply chain diversification strategies.
Notably, the foreign direct investment (FDI) inflows to India grew by 10 per cent to $49 billion in 2022, making the country the third-largest host for announced greenfield projects and the second-largest for global project finance deals. Another factor contributing to the fixed capital formation in India remains the enhanced government spending on roads, railways, and renewable energy projects, that have the potential to have a crowd-in effect on investments from the private sector.
The data from the Reserve Bank of India revealed that during the April to September 2023 period, government capital expenditure in the country increased by 43.1 per cent on a year-on-year (YoY) basis.
The UN report highlighted that dampening global demand, unresolved trade concerns between the largest trading partners, and geopolitical conflicts are impacting trade flows in the short term. It observed that the conflict in Ukraine and the consequental sanctions imposed on Russia have also affected global trade patterns. “Crude oil exports from the Russian Federation, for example, have shifted from the European Union to China and India, which together accounted for close to 75 per cent of the country’s crude oil exports in the first quarter of 2023,” it stated, citing data.
The report noted that Russian economy is increasingly feeling the negative effects of sanctions and reducing export revenues. The country has majorly managed to evade the $60 per barrel oil price cap levied by the Group of Seven countries, it has been forced to provide steep discounts on the sale of crude to major buyers like China and India.
Economic Outlook
Further, it stated that strict financial conditions and fiscal and external imbalances are expected to keep impacting growth in South Asia in the near term. Additionally, the geopolitical tensions would further expose net oil importing countries in the region, like India, to sudden oil price hikes.
Another major risk to the economic outlook of the region remain the extreme weather conditions likely in the region, such as the return of the El Nino climate phenomenon. “Warmer-than-average temperatures will likely boost power demand and may also place a strain on local hydropower resources amid lower levels of precipitation, which could lead to power rationing constraining industrial activity, as has already been experienced by some South Asian countries in recent years,” it said.
The report stressed that the South Asia region continued to be impacted by climate change related events in 2023. Droughts intensified considerably during July and August last year, impacting majority of India, Nepal, and Bangladesh, whereas, Pakistan saw above-average levels of rainfall. August was one of the driest months in the last four decades for India, and affected the production of crucial staple crops in the most impacted regions.
Further, El Nino is anticipated to impact precipitation patterns in multiple Asian countries, leading to extreme droughts or floods, in turn affecting agricultural output. These events are expected to be disproportionately severe in nations where agriculture contributes the largest share of the GDP.
The report noted that damage to crucial agricultural crops would potentially result in hiking food prices, intensifying food insecurity pressures across the region, specially in countries already witnessing high levels of food insecurity, and undermining progress regarding the Sustainable Development Goals.