IBEF: June 01, 2020
In 2019-20, Singapore was the top source of foreign direct investment into India for the second consecutive financial year, accounting for about 30 per cent of FDI inflows. It surpassed Mauritius in the past two financial years.
According to the data of the Department for Promotion of Industry and Internal Trade (DPIIT), in FY20, India attracted US$ 14.67 billion in FDI from Singapore, while it was US$ 8.24 billion from Mauritius.
In 2018-19, Singapore's FDI aggregated at US$ 16.22 billion, whereas that from Mauritius it was US$ 8.08 billion.
Singapore surpassed Mauritius because of its ease of doing business policies, simplified tax regime and a large number of private investors.
"Mauritius was once seen as a tax haven making it the most favoured nation for routing investments in India. April 2017 brought key amendments to the bilateral treaties with Mauritius and Singapore which neutralized the tax benefits available in Mauritius. Singapore with its ease of business policies, simplified tax regime and large number of private investors has been able to outrun Mauritius," Mr Sandeep Jhunjhunwala, Partner, Nangia Andersen LLP said.
India is a primary destination to invest because of the attractive corporate tax rates, swift response in combating the COVID-19 pandemic, impressive mobile and internet penetration, and technology uptake.
"While countries are battling the COVID-19 pandemic and the world economy is headed into recession, India received a mammoth investment from stake sale of Jio Platforms. Economists and investors are now closely watching India as it is headed towards becoming a digital giant," Mr Jhunjhunwala added.
Mr Biswajit Dhar, a professor of economics at Jawaharlal Nehru University, said significant FDI is coming from Singapore because of "round tripping".
“Inflows from Mauritius have been affected after the agreement on double taxation avoidance," said Mr Dhar adding future FDI inflows into India would also depend on the state of global FDI flows.
In 2017-18, FDI inflows from Mauritius stood at US$ 15.94 billion and from Singapore, it was US$ 12.18 billion.
In India, FDI increased by 13 per cent, which is the sharpest pace in the last four fiscals and recorded US$ 49.97 billion in 2019-20, according to the data.
Whereas in India, the total FDI including re-invested earnings and other capital in 2019-20 increased by 18 per cent to US$ 73.45 billion as against US$ 62 billion in 2018-19.
Mr Rajat Wahi, Partner, Deloitte India, said, "Yes, but probably not as much as in the last three years due to three months getting wiped out (due to COVID-19 pandemic). But given the funds available globally and our strength in tech-enabled businesses, FDI will flow again post lockdown".
This growth in FDI in 2019-20 was in line with the growth of e-commerce, fintech and startups, that was continuing for the last five years, especially last year, he added.
"Given the amount of money that is being pumped in by various governments to revive their respective economies, the expectation is that we will again see a major increase in investments into startups and new tech-enabled businesses post the lockdown," added Mr Wahi.
The foreign investments are important for India as it requires large investments for revamping the infrastructure sector such as ports, airports and highways to boost growth.
FDI helps in improving the country's balance of payments and strengthen the rupee value against other global currencies, especially the US dollar.
Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.