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Singapore is largest source of foreign direct investment into India

This article is more than 12 months old

Change due to Walmart's investment in online retailer, tax treaty amendments

Singapore has emerged as the largest source of foreign direct investment (FDI) into India, underlining growing business links between the two countries.

According to the latest figures from the Indian Department for Promotion of Industry and Internal Trade, the country received the greatest share of FDI inflows from Singapore, valued at US$ 16.23 billion (S$22.13 billion), in the last Indian financial year, which ended on March 31.

Singapore was followed by Mauritius (US$8.08 billion), the Netherlands (US$3.87 billion), the US (US$3.14 billion), and Japan (US$2.97 billion).

The total FDI inflow into India for the 2018-2019 financial year stood at US$44.37 billion.

One of the factors behind the jump in FDI inflow from Singapore was a big-ticket investment from Walmart, which acquired a 77 per cent stake in Indian online retailer Flipkart for US$16 billion in May last year.The latter's parent firm is based in Singapore.

This is, however, not the first time Singapore has attained the top spot. It was also the top source for FDI inflows into India in 2015-2016, accounting for nearly a third of the total inflows.

The rise of Singapore as an FDI source, according to investment experts, can be attributed to tax treaty amendments that India has signed in recent years with Singapore and others like Mauritius that have brought tax parity, providing a level playing field.

This has been reinforced by structural advantages that Singapore enjoys over other countries, like ease of doing business and its position as a major trading hub, making it a preferred destination to base firms and from which to route FDI.

Mauritius has for many years enjoyed the top spot among sources of FDI inflow into India primarily because of its status as a tax haven.

A tax treaty signed between India and Mauritius in 1982 allowed for capital gains tax exemption.

This led to largely indirect foreign fund inflows from Mauritius into India.

This is because Mauritius serves as a transit point for firms based elsewhere to save on taxes.

This, however, led to concerns of widespread tax evasion.

Mr Krishan Malhotra, a partner at tax advisory firm Dhruva Advisors, told The Straits Times: "There has always been greater scrutiny of the substance of entities incorporated in Mauritius than those in Singapore."

Singapore, with its well-established regulatory environment, banking facilities and easier access to funds as well as human resource talent, helps firms create stronger substance.

Mr Malhotra added: "Singapore is not merely a jurisdiction of convenience to save tax.

"From the perspective of tax authorities in India, this inspires more confidence."