Singapore becomes India's top FDI source, Mauritius slips behind

Singapore leapfrogged Mauritius to become India’s largest source of Foreign Direct Investment months before the country’s double tax avoidance agreement with Singapore came into force. Singapore toppled Mauritius, as FDI in equity from Singapore crossed 41 per cent during April and December 2018 to nearly USD 13 billion, while FDI from Mauritius slipped 55 per cent from a year back to only USD 6 billion, displayed the latest official data, the Financial Express reported.   

India’s total equity FDI inflows rose up 23 per cent significantly during the first quarter, but slowed down subsequently, and slipped 7 per cent to USD 33.5 billion during the same period. The inflows are stated to register a drop in FY19 – first annual drop in the current Modi era – unless the last quarter registers a huge recovery.

Intriguingly, at USD 6.06 billion, chemical FDI inflows sparring fertilizers during the first three quarters of 2018-19 toppled those into financial and other services ( USD 5.92 billion), computer software and hardware ( USD 4.75 billion), telecommunications (USD 2.29 billion), trading (USD 2.34 billion) and automobiles (USD 1.81 billion). The chemicals sector lured only USD 1.3 billion during the whole 2017-18 year, reported the Financial Express.

Speaking of India’s FDI locations, India modified its 33 year tax pact with Mauritius during May 2016, and updated it with Singapore in December 2018 to close the gaps exploited by companies in tax havens to avoid legal taxes.

The report states, the agreements will be applicable from April 2019 after a two year changing period during which capital gains on transfer of Indian shares procured from April 2017 are being taxed at 50 per cent of the domestic rate. Post April 1, 2019, full domestic capital gains tax will be effective.

Inflows from Mauritius have slumped, after the advantages of tax haven are yet to kick off. Although, since Singapore has a strong and evenly transparent financial system with smoother access to funds at cheaper costs, several foreign companies with interest in India feel reluctant to invest through Singapore than Mauritius, stated analysts, reported the Financial Express.

However Singapore had also overthrown Mauritius as the top source of FDI into India in 2015-16 (only to give away the top rank in the next year), the gap in their investments was never as huge as during 2018 and 2019.

Previously, the share of Mauritius in cumulative FDI inflows into India from April 2000 has declined slowly over the years from as big as 42 per cent on March 2011 to 32 per cent on December 2018; while Singapore’s cumulative FDI sky rocketed to 19 from 9 per cent during the same period, the Financial Express reported.

The fall in overall FDI inflows this year could add pressure on the rupee; however a decline in oil prices in recent months has brought down the pressure of trade balance, the largest part of India’s current account.

Previously, current account deficit slipped to 2.9 per cent of GDP during July and September 2018-19 from 2.4 per cent during the previous quarter.

(With agency inputs)