Mauritius sends Rs 107.7 bn in FDI to become top investing country in India
Investors used the island to invest USD 3.39 billion (MUR 107.70 billion) into the Indian economy from April to July 2014, as against Singapore, which contributed USD 1.67 billion (MUR 53.06 billion) as Foreign Direct Investment (FDI) to India, for the period under review. (Image: Rianovosti)
Mauritius has regained its leading position for foreign direct investments routed to India, with investors using the island to invest USD 3.39 billion (MUR 107.70 billion) into the Indian economy from April to July 2014.
Data from the Department of Industrial Policy & Promotion (DIPP) of India also showed that Singapore, which contributed USD 1.67 billion (MUR 53.06 billion) as Foreign Direct Investment (FDI) to India, was left far behind by Mauritius for the period under review.
Taking into account the broader period from January to July 2014, India received a total of USD 18.48 billion (MUR 587.11 billion) compared to the corresponding period of 2013, when investments stood at USD 12.53 billion (MUR 398.08 billion), representing a growth of 47%.
Besides, DIPP data showed that from April 2000 to July 2014, Mauritius ranked first with USD 81.91 billion (MUR 2.60 trillion) FDI equity inflows to India while Singapore came second, sending USD 27.11 billion (MUR 861.28 billion) in FDI equity inflows to the Asian emerging giant.
The Indian sector that attracted highest FDI equity inflows for the period April to July 2014 is the services sector with USD 1.03 billion (MUR 32.72 billion), followed by the construction development sector, at USD 430 million (MUR 13.66 billion).
While waiting for the decision on the General Anti-Avoidance Rules (GAAR), investor opinion seems to have turned in favour of the Mauritian jurisdiction, benefiting from the open-door policy of the new Indian government under Prime Minister Narendra Modi.
Prime Minister Modi has expressed the belief that the Indian economy can be greatly boosted by foreign capital of USD 1 trillion (Rs 31.77 trillion) over five years as investments into infrastructure projects.
Hence, several measures were taken by the government to boost FDI into the country such as the increase in the limit of foreign investment to 49% in the defence manufacturing sector and softening the policy in the construction sector, as well as an increase in the ceiling of FDI within the insurance sector to 49%.
Finally, the verdict from the High Court of Delhi this August on the application of its indirect transfer tax, augurs well for companies from Mauritius that are investing in India.
In the concerned case, the High Court ruled that transfer of shares of a foreign company by one overseas entity to another will not trigger capital gains tax in India, if the foreign company which is being sold derives less than 50% of its value from assets in India.
This verdict might help in the case of telecommunications major Vodafone, which is also fighting a battle with tax authorities on the issue of indirect transfers in the USD 11-billion Hutch deal.
Essentially, the Hutch-Vodafone deal that took place in 2007 involved the transfer of shares of a foreign company outside India, which indirectly held the shares of an Indian company.
The deal triggered one of India’s biggest tax controversies, with the Tax Authority demanding approximately USD 2.5 billion in capital gains tax from UK-based Vodafone.
The case is awaiting judgement from the Indian Supreme Court, which will likely be a landmark judgement covering various significant international tax aspects such as tax avoidance, use of tax havens, interpretation of favorable tax treaties, substance over form of a transaction, etc.
Most importantly, the outcome of this case is keenly awaited round the globe, including in low-cost jurisdictions such as Mauritius, as it will play a significant role in shaping India’s future tax policy.
Crucially enough, depending on whether the verdict goes in favour of Vodafone or against it, it could also either boost or dampen the enthusiasm of global investors and cross-border acquirers to route investments through low-cost jurisdictions while approaching India.