News Excerpt:
India received the highest foreign direct investment (FDI) from Singapore in 2023-24 even as overseas capital inflows into the country contracted by about 3.5% due to global economic uncertainties, according to the latest government data.
More About News:
- India attracted the maximum foreign direct investment (FDI) inflows from Singapore in the fiscal year 2023-24, though the FDI from Singapore dipped by 31.55% to $11.77 billion.
- Since 2018-19, Singapore has been the largest source of FDI for India, replacing Mauritius, which was the top source in 2017-18.
- During the last fiscal, FDI equity inflows decreased from major countries, including Mauritius, Singapore, the U.S., the U.K., UAE, Cayman Islands, Germany, and Cyprus.
- However, investments increased from the Netherlands and Japan.
- India witnessed a drop in FDI primarily due to the global uncertainty on account of the disturbances in the Middle-East and Europe.
Reasons for FDI Decline in India:
- FDI equity inflows in India declined 3.49% to $44.42 billion in 2023-24 as against $46.03 billion in 2022-23.
- The total FDI which includes equity inflows, reinvested earnings and other capital declined marginally by one per cent to $70.95 billion during 2023-24 from $71.35 billion in 2022-23.
- In 2021-22, the country received the highest ever FDI inflows of $84.83 billion.
- Sectorally, inflows contracted in services, computer software and hardware, trading, telecommunication, automobile, pharma and chemicals.
FDI Outlook and Major Investor Countries
- India is expected to improve in 2024-25 compared to 2023-24, although it may still remain below 2022-23 levels.
- A stable government post-elections is likely to boost FDI into India.
- Future growth is anticipated in construction (infrastructure), development, and power sectors, with healthy growth in inflows projected
- The United States was the third-largest investor in India in 2023-24, with foreign investments of $4.99 billion, down from $6 billion in the previous fiscal year.
- Other significant investors in India during 2023-24 included the Netherlands ($4.93 billion), Japan ($3.17 billion), the UAE ($2.9 billion), the UK ($1.2 billion), Cyprus ($806 million), Germany ($505 million), and the Cayman Islands ($342 million).
Factors Contributing to High FDI from Singapore
- While various geo-economic and political factors have contributed to Singapore's increased prominence recently,
- The primary reason it tops the FDI charts for India is its favorable tax policies.
- India's initiatives such as amendments by the SEBI to the REIT Regulations 2014 have created new opportunities for Singapore-based investors, which is why India is likely seeing high FDI from Singapore
- Many multinational companies have their regional headquarters or holding companies based in Singapore, making it a convenient location for channelling investments into India.
- India amended its tax treaty with Mauritius to introduce a source-based taxation regime for capital gains, eliminating the tax advantage and reducing the attractiveness of Mauritius as an investment hub for India.
- The double tax avoidance agreement between India and Singapore provided for many beneficial provisions including capital gains exemption in India for investments made from Singapore and even though this provision has been amended.
Conclusion:
- Foreign investments are crucial for India to overhaul its infrastructure such as ports, airports and highways to push growth.
- FDI helps improve the country's balance of payments situation and strengthen the rupee value against other global currencies, especially the U.S. dollar.
