Where Does The FDI Come From?

What are the major sources of FDI into India? Explained here through a simple chart. 

The graph below shows the top sources of Foreign Direct Investments (FDI) inflows into India from fiscal year 2012 to 2015.

When viewed on a cumulative basis, Mauritius has been the leading source of FDI into India – not just for the three years as shown in the graph, but for the past fifteen years. This is primarily because of the Double Taxation Avoidance Agreement (DTAA) that India has signed with the island nation, which allows investors to pay capital gains tax only in the resident country – in this case, Mauritius. The tax is close to zero.

Source: Department of Industrial Policy and Promotion, Ministry of Commerce and Industry

In 2013-14, however, Mauritius had lost its top spot to Singapore owing mainly to the concerns about the General Anti-Avoidance Rules (GAAR), which seeks to check tax avoidance by investors. GAAR was originally supposed to be implemented from April 2015, but was deferred by two years to April 2017. This allowed Mauritius to regain its top position in 2014-15. To be sure, DTAA is also signed with Singapore, but the terms of the agreement are stricter (only those companies that spend at least $2,00,000 in Singapore can avail the benefits of the treaty).

In the latest year (2014-15), FDI grew by a staggering 40 per cent year-on-year to Rs. 1.76 lakh crore, owing partly to the government’s efforts at improving ease of doing business. Higher FDI has helped moderate India’s balance-of-payments situation and will also potentially contribute to the country’s infrastructure development, which is estimated to cost over $1 trillion over the next five years.