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FDI Confidence Index - Latest Report 2022, India's Rank & Important Facts for UPSC Notes!

Last Updated on Jul 27, 2023
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FDI Confidence Index prepared by A.T. Kearney is an annual survey that tracks the impact of probable political, economic, and regulatory changes on the intents and preferences of CEOs, CFOs, and other top executives of Global 1000 businesses with regard to foreign direct investment. The FDI confidence index is calculated as a weighted average of the number of low, medium and high responses to questions regarding the likelihood of making a direct investment in the market over the next three years. The report contains a list of the top 25 nations along with a detailed discussion of the markets and the effects of various global trade concerns on their FDI attractiveness. 

FDI Confidence Index is one of the important topics for the UPSC IAS Exam. It also covers a significant part of the Economy subject in the General Studies paper-3 syllabus. In this article, we shall cover in detail the meaning of FDI, FDI Confidence Index 2022, the latest important facts, and its relevance for UPSC.

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Recent Updates
  • According to the global FDI Confidence Index 2022, the United States holds the top spot for the tenth year in a row, Canada drops one spot to third, and Germany moves up to second.
  • The United Kingdom drops one spot to fifth, while Japan rises to fourth. With the exception of China moving up from 12th to 10th, the top 10 markets on the Index are essentially unchanged from 2021. 21 of the 25 positions on the Index, including the top nine, are occupied by developed markets.
  • For company leaders whose strategy and bottom lines have been affected by the pandemic, these markets continue to demonstrate their strength in our poll amid times of crisis. The only emerging economies of 2022 are China, the United Arab Emirates, Brazil, and Qatar.

Also, check out the article on Foreign Direct Investment (FDI) In the Retail Sector here.

What is FDI?

FDI stands for Foreign Direct Investment. According to United Nations Conference on Trade and Development (UNCTAD), FDI is defined as Foreign direct investment (FDI) is defined as an investment involving a long-term relationship and reflecting a lasting interest and control by a resident entity in one economy (foreign direct investor or parent enterprise) in an enterprise resident in an economy other than that of the foreign direct investor (FDI enterprise or affiliate enterprise or foreign affiliate).

FDI in the Retail Sector means that foreign businesses or companies in specific categories can sell their products via their own retail shops in the domestic market.

What is FDI Confidence Index?

The first report of the global FDI Confidence Index was released in 1998. It is an annual indicator developed by A.T. Kearney, a worldwide management consulting company that has offices in 40 nations throughout the world. In the index, nations are ranked from 0 to 3 according to their attractiveness to foreign direct investment.

The greatest confidence level is three, which is represented by a score.

The index was created using information from a survey that included responses from senior executives, regional leaders, and business owners from 27 nations with significant FDI outflows. The study asks participants to rate their likelihood of making a direct investment in a specific nation over the next three years as high, medium, low, or “no interest.” An overall country score is created from the individual responses.

एफडीआई कॉन्फिडेंस इंडेक्स के बारे में हिंदी में भी पढ़ें!

FDI Confidence Index: 2020 and 2021

The below table shows the rankings of the top 10 countries.

FDI Confidence Index at Glance
S.No 2021 2020
1 United States United States
2 Canada Canada
3 Germany Germany
4 United Kingdom Japan
5 Japan France
6 France United Kingdom
7 Australia Australia
8 Italy China
9 Spain Italy
10 Switzerland Switzerland

FDI Confidence Index 2022

The United States had the highest Foreign Direct Investment (FDI) confidence index score in the world in 2022, at 2.19. Qatar, a new to the top 25, has an FDI confidence index of 1.69. It is measured on a scale from 0 to 3, with 0 representing poor confidence in a market for FDI and 3 being the maximum level of market confidence.

India’s Rank in FDI Confidence Index 2022

In 2020, 2021, and 2022, India continued to be absent from Kearney’s list of 25 nations. India’s ranking in Kearney global FDI confidence index 2019 was 16th, down from its previous position of 11th. India placed eighth and joined the top ten in 2017.

Reasons behind the fall of India’s Rank in the FDI Confidence Index

The reasons behind the fall and being absent in the ranking can be attributed to certain factors such as

  • Demonetisation: Due to the announcement of demonetization in India in 2016, the Indian economy was deeply impacted.
  • Poor Implementation of Goods & Services Tax (GST): It was implemented in India in 2017 to give the country the best tax system and to boost tax collections.
  • Failure of Start-ups: Due to the failure of many start-ups and poor implementation of entrepreneurship, the Indian economy is deeply affected.
  • Covid-19 Pandemic: The pandemic in 2020 is a big setback to the Indian economy as well as to human lives. All the major sectors of the Indian economy including the private sector, manufacturing, infrastructure, etc have it highly impacted..

Measures Undertaken to Improve India’s Rank in the FDI Confidence Index

FDI in India is considered and recommended through a national agency of the Government of India, known as Foreign Investment Promotion Board (FIPB). The following measures have been taken by the government of India to boost domestic and Foreign Direct Investments in India:

  • The government’s revision of the FDI Policy 2017 to allow 100% FDI under the automatic route in coal mining activities increased FDI inflow in 2019.
  • In the Union Budget 2021–22, an allocation of INR 1.97 lakh crore (more than US$ 26 billion) for 13 important manufacturing sectors, starting from fiscal year (FY) 2021–22, has been announced. This is in keeping with India’s vision of becoming an “Atmanirbhar” and improving India’s manufacturing capabilities and exports.
  • Some of the other pointers include
    1. Non-Banking Financial Companies and bank liquidity issues
    2. FDI policy reforms
    3. Reduction of Compliance burden
    4. Policy measures to boost domestic manufacturing through public procurement orders, Phased Manufacturing Program (PMP), and various ministries Production Linked Incentives (PLI) schemes
    5. Improved Ease of Doing Business

Conclusion

In order to improve India’s FDI Index, taking several measures is the need of the hour. Certain measures can be incorporated into the budget in order to keep a check and boost FDI in India. Also, several measures should be taken by India’s central bank Reserve Bank of India to overcome inflation and boost the economy.

UPSC Mains Previous Year Questions
  1. Justify the need for FDI for the development of the Indian economy. Why is there a gap between MOUs signed and actual FDIs? Suggest remedial steps to be taken for increasing actual FDIs in India. (UPSC 2016)

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FDI Confidence Index FAQs

It is an annual survey that tracks the impact of probable political, economic, and regulatory changes on the intents and preferences of CEOs, CFOs, and other top executives of Global 1000 businesses with regard to foreign direct investment.

FDI Confidence Index is measured and published by Kearney.

It is calculated on a scale from 0 to 3, with 0 representing poor confidence in a market for FDI and 3 being the maximum level of market confidence.

United Nations tops the FDI Confidence Index 2022 with a score of 2.19.

The processing of FDI proposals and the formulation of recommendations for government approval fall within the purview of the Foreign Investment Promotion Board (FIPB), Department of Economic Affairs, and Ministry of Finance.

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