Foreign Direct Investment Current Affairs - 2019

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World Investment Report 2019: UNCTAD

According to the World Investment Report 2019, released by United Nation Conference on Trade and Development (UNCTAD), Foreign Direct Investment (FDI) inflows to India grew by 6% to USD 42 billion in 2018. India was ranked among the top 20 host economies for FDI inflows in 2017-18.

Key Findings of Report

FDI to India: It grew by 6% to $42 billion in 2018 saw strong inflows in manufacturing, financial services sectors, communication and cross-border merger and acquisition activities.

FDI inflow to South Asia: It increased 3.5% to $54 billion dollars. It highlighted that the prospects for FDI inflows into South Asia are largely determined by expectations of growing investment into India. India has historically accounted for 70% to 80% of inflows that came to the South Asian region. Among other countries in South Asian region, FDI flows to Sri Lanka and Bangladesh rose to record level, to $1.6 billion and $3.6 billion respectively, but Pakistan witnessed a 27% decline in investment to $2.4 billion.

About UNCTAD

It was established in 1964 for integrated treatment of trade and development and related issues in areas of investment, finance, technology, enterprise development and sustainable development. It is organ of UN General Assembly (UNGA). There are 195 members in UNCTAD. Its mandate is to maximize trade, investment and development opportunities of developing countries and assist them in their efforts towards integrating into world economy on an equitable basis without any bias.

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India finds OECD’s STR Index faulty

India has found problems with the current methodology adopted by the Organisation for Economic Cooperation and Development (OECD) under its Services Trade Restrictiveness Index (STRI) to rank countries.

Key Highlights

  • About: A study commissioned by Indian Ministry of Commerce found that OECD index, the STRI has a several problems associated with it, which also includes some significant design issues that render the index impractical for use.
  • Issues: As per India the outcomes of STRI are biased and counter-intuitive.
  • The initial work suggests that there are both empirical and theoretical inconsistencies in STRI’s methodology.
  • The data generated by OECD’s methodology seems to have been through arbitrary procedures and reflects being bias towards developed country.
  • It shows Indian services sector as highly restrictive in areas such as FDI.
  • Impractical: For instance, STRI seems to show the services sector in India as one of the most restrictive in world, particularly in policy areas like foreign entry, FDI etc. This is astonishing as since 1991, following the LPG reforms the one area that has seen maximum liberalisation in India is Foreign Direct Investment (FDI).
  • India’s Approach: India is trying to build a consensus around adopting a new method of measuring trade restrictiveness in services sector. For this India approached several developing countries during recently-concluded WTO Ministerial talks held in New Delhi. It has also approached South Africa, Indonesia, China, Turkey and Brazil.
  • India’s Argument: Unlike manufacturing trade which has a well-documented system of classification of commodities, the problem in services, is that for a long time there was not any way to find that whether a country’s service trade policies were restrictive.
  • Also, even if it was ascertain as restrictive it was not known that what to do about it since services trade is usually regulated by domestic regulations and not border tariffs.

About STRI

  • It was launched in 2014, by The Organisation for Economic Cooperation and Development (OECD).
  • It purpose is to rank countries based on their services trade policies.
  • STRI (computed by OECD) is now available for year 2018. It includes a total of 45 economies (with 36 OECD and the rest non-OECD) and 22 sectors. These countries and sectors undertaken represent more than 80% of global trade in services.

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