Scrutinise FDI from Singapore, Mauritius

Detailed examination needed to find out whether they constitute actual investments or are diversions from other sources to avail tax benefits.

Updated - February 27, 2016 11:25 pm IST

Published - February 27, 2016 11:24 pm IST - NEW DELHI:

A close scrutiny of foreign direct investments from Singapore and Mauritius is needed as both the nations accounted for about 60 per cent of the $30 billion worth of FDI in India during the first three quarters of the current fiscal year, a government statement tabled in the Parliament said.

A detailed examination is needed to find out if they constitute actual investments or whether they are diversions from other sources to avail tax benefits under the Double Taxation Avoidance Agreement (DTAA) that India has with these two countries, according to the Economic Survey released on Friday.

According to government data, of the $29.5 billion FDI into India during April-December 2015 in 2015-16, around $11 billion was from Singapore, while $6.1 billion was from Mauritius.

Also, of the $278 billion worth FDI India received during April 2000-December 2015, a whopping $93.6 billion (or 34 per cent of the total) was from Mauritius, while $43.2 billion (16 per cent of the total) was from Singapore. These two countries together accounted for half of the total FDI inflows into India during the15-year period.

A recent note on FDI prepared by the New Delhi-based Institute for Studies in Industrial Development (ISID) said though successive governments have put FDI at the centre-stage of India's development priorities for over two decades, detailed and systematic analysis of the nature of FDI inflows and its likely implications, including the differing developmental impacts, have not been made so far.

Analysis of critical operational aspects of FDI companies is often based on small sets of easily available companies ignoring the fact that a majority of FDI companies are unlisted and are registered as private limited companies, according to the institute.

Half of the FDI inflows during 2004-2014 cannot be termed as “realistic FDI,” and inflows into the manufacturing sector accounted for a low proportion of the total reported inflows.

However, tax experts and consultants said Mauritius and Singapore being one of the leading foreign investors is not a new phenomenon and that the government has been aware of this trend for a long time.

Dhiraj Mathur, partner, PwC, said so long as these investments are within the framework of the law, the government should not be concerned about where the FDI is coming from. Referring to the huge investments from Singapore into India, he said several companies including from India had taken advantage of the concessions given by the Singapore government to set up regional headquarters there. These companies had also raised money in Singapore to in turn invest in India and other countries, he said.

Most of the FDI coming into India through Mauritius, Singapore and Cyprus are actually from the U.S. or from India-related investors, according to K S Chalapathi Rao, professor, ISID.

The Mauritius route is used for availing tax benefits and for ensuring anonymity. He said FDI from Mauritius is however sector-agnostic unlike FDI from countries like Japan, Germany and France, which are mostly in manufacturing-related sectors.

The Singapore route is used mostly by Indian entities with a regional office there, he said.

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