Foreign direct investment in India jumped 13% in 2020 compared to the year before, making it one of the only major economies in the world to record an increase in FDI in the pandemic-battered year, according to the United Nations Conference on Trade and Development.

After low levels of foreign investment in the first half of 2020, when economic activity stalled in India under a nationwide lockdown, FDI levels spiked in August, thanks in large part to equity inflows to tech giant Jio Platforms, a subsidiary of India's largest company, Reliance Industries, the conglomerate run by Mukesh Ambani, India's richest man.

Jio Platforms snagged a $5.7 billion investment from Facebook and a $4.5 billon investment from Google, as well as smaller investments from several U.S. private equity firms that purchased stakes in Jio, which operates in industries like telecoms, e-commerce, and cloud computing.

"Indian FDI also grew because COVID didn't impact, but rather further buoyed, such digital economy investments and made them even more potentially profitable," says Premila Nazareth Satyanand, a senior fellow at India's National Council of Applied Economic Research who researches FDI in India.

The $5.7 billion Facebook acquisition, which represents a 10% stake in Jio, made up 21% of all cross-border mergers and acquisitions sales in India in 2020, according to UNCTAD.

India's spike in FDI inflows in August, occurred alongside a slowly recovering broader economy. After contracting nearly 24% year-on-year in the quarter that ended in June, India's gross domestic product contracted 7.5% in the quarter that ended in September.

Globally, FDI dropped 42% last year. Inflows declined for the U.S., the U.K., and other major economies. India, China, Japan, and Saudi Arabia were the only G20 countries where FDI rose in 2020, according to UNCTAD.

The Jio investments helped drive up FDI last year, but overall, FDI into India is still concentrated on the services, IT, and telecoms sectors, says Bornali Bhandari, a senior fellow at the National Council of Applied Economic Research in India. "We need to do a lot more to make it more broad-based," she said.

India vs. China

India's FDI increased by 13%, while China's rose 4%, according to the UNCTAD report.

Despite India's higher increase in terms of percentage points, the amount of money flowing to the two countries differs enormously. India's FDI rose to $57 billion in 2020, while China attracted an estimated $163 billion, more than any other country in the world.

India's FDI stocks, the total value of foreign capital directly invested in the country's businesses, is also significantly lower than China's.

"The number has gone up by 13%, but it's a low base," says Rajneesh Narula, a professor of international business regulation at the University of Reading who researches foreign investment.

Narula pointed out that India's FDI stock is roughly a third of mainland China's, which both have a population of around 1.4 billion people. India's FDI stock is also a third of the FDI stock in Hong Kong, which has a population roughly 0.5% that of India's.

"For a country of that size it shouldn't be [one third] of Hong Kong, so it indicates...that India's efforts to sell itself have been largely unsuccessful," Narula says.

Uncertainty principle

Narula attributes India's low FDI stock to years of political tumult and "notorious" government changes to regulations on FDI that can leave foreign investors uncertain about putting money into India.

Reuters reported last week that India's government is considering revising FDI rules in e-commerce that could hurt foreign firms like Amazon, which owns indirect equity stakes in Indian e-commerce companies Cloudtail and Appario.

At the same time, Narula says, investors remain eager to find ways into India. "At the end of the day, it's the world's largest market...there's going to be people who want to sell in the Indian market."

China is currently the world's largest market by population size, but India's population is expected to overtake China's in 2026.

"Companies recognize there's 1.3 billion people [in India]...companies would like to get hold of this market," Narula says.

Last week, for instance, oil multinational Total SA invested $2.5 billion into Indian renewable energy firm Adani Green Energy, which is owned by the conglomerate Adani Group.

At the same time, Narula says the 13% FDI increase belies the extent of the pandemic's negative effect on the global economy and on India's economy.

"The smaller companies are all tightening their belts and staying at home, so what we're seeing in India...is large companies making large bets to think ten years down the line," Narula says. "The fact of the matter is there's very little positive news. Everyone's holding off on big investments. The big companies are making acquisitions because they can afford to play the long game."