Even as the Central Government on Monday announced that foreign direct investment (FDI) inflows had recorded a huge jump of 111 per cent in May this year, FDI inflows from two of the tax havens — Cyprus and Mauritius — declined significantly during 2010-11.

With the Government announcing its intention to review the Double Tax Avoidance Agreement (DTAA) with majority of the nations amid rising concerns over generation of untracked black money, the country witnessed a decline in FDI inflows from countries like Cyprus and Mauritius.

On the other hand, FDI inflows saw a steep 111 per cent increase in May at $4.66 billion, the second highest monthly inflows in 11 years indicating revival of investor confidence in the Indian economy.

In May 2010, FDI inflows stood at $2.21 billion. For the April-May period of the current fiscal, FDI went up by a huge 77 per cent to $7.78 billion from $4.39 billion in the corresponding period in the previous year. In the previous fiscal, the equity inflows through FDI had dipped 25 per cent amid uneven global recovery from the recession of 2008.

“The recent trend of dip in FDI inflows appears to have been reversed in the current financial year. Recent investment announcements like $7 billion BP-Reliance tie-up are indicative of a positive trend,” an official statement issued by the Commerce and Industry Ministry said here.

It said the government had taken various measures to boost confidence of global investors and streamlined the procedures. “The approval given to Posco and to the Cairn-Vedanta acquisitions are also likely to substantially increase FDI this year,” it further said.

While FDI inflows from all sources declined by 25 per cent in 2010-11, the drop was steeper at about 33 per cent to $6.98 billion from Mauritius. Likewise, inflows from Cyprus were down by 44 per cent to $913 million, according to official figures.

During 2009-10, FDI from Mauritius stood at $10.37 billion, again a decline from $11.22 billion in 2008-09. FDI inflows from Cyprus stood at $1.62 billion. Mauritius has been a preferred route for both FDI and foreign institutional investors (FII). However, despite the fall, Mauritius still accounted for 42 per cent of the country's total FDI of $19.42 billion in the previous fiscal. In 2009-10, the country attracted FDI worth $25.83 billion.

India has a 30-year-old DTAA with Mauritius which has been used by the third country investors to avoid taxes. Under the DTAA, the capital gains tax can be subjected only in one of two countries. As it is nil in the island nation, investors manage to avoid it altogether.

Keywords: FDI inflows

More In: Economy | Business