The figures are expected to comfort policymakers who were worried about tepid growth in equity investments, which had contracted by 1 per cent in 2018-19 and risen only 3 per cent in the year before that.
But sources say the DPIIT
is wary of inflows shooting up from tax havens, generally defined as a country or place with very low effective rates of taxation for foreign investors. “We have noticed the increasing incidence of potential round tripping of profits by Indian companies. This will be discussed with the Corporate Affairs Ministry,” said a senior official. Even if seen as pure investments by foreign entities, these flows tend to be volatile and unsustainable, he added.
Equity inflows worth $3.7 billion came from the sunny Caribbean jurisdiction in 2019-20, a 267 per cent increase from the $1 billion registered in 2018-19. Located nearby, the tiny British Virgin Islands pushed in $262.5 million, a small figure until someone considers that it only sent $46 million in 2018-19.
The two United Kingdom dependencies were ranked first and third in the Corporate Tax Haven Index (CTHI) released last year by the Tax Justice Network, an independent international network advocating against tax avoidance.
The CTHI ranks the world’s most important tax havens for multinational corporations which erode the tax revenues of other countries around the world.
Larger nations present
It also lists larger, more formalised tax heavens like the Netherlands, Switzerland, and Cyprus as being major hubs for hiding corporate profits.
As of March 2020, the Netherlands and Cyprus continue to be in the top-10 sources of historical FDI
for India. In particular, Netherlands is the 3rd-largest source of historical FDI
for India, accounting for an impressive 7.2 per cent of all FDI into India since 2000. In the last financial year, it sent $6.49 billion, a handsome 67 per cent increase over its tally from the year before. Investments from Cyprus, the eighth-largest source FDI, also accelerated. Equity worth $879.4 million came in from the Mediterranean nation, up from $296 million a year back.
Figures presented by the government to Parliament in 2018 showed that FDI from nations widely regarded as tax havens began spiking in 2017-18. Investment flows from European principalities such as Luxembourg also rose.
In FY20, the liberal tax hub of the Singapore continued to be the largest source of FDI for India for the second consecutive year, pushing in $14.6 billion, followed by Mauritius at $8.2 billion. Singapore has long been the highest source of foreign funds for India, pumping in around $97.6 billion since 2000, constituting a fifth of all inbound FDI over this period.
“Inflows from Mauritius have been affected after the agreement on double taxation avoidance was signed in 2017. Now, significant FDI is coming from Singapore because of round tripping,” said Biswajit Dhar, senior trade policy expert and Professor at Jawaharlal Nehru University.
Interestingly, inflows from China's special administrative region of Hong Kong have remained subdued. Investments from Hong Kong rose just 15 per cent in FY20, after contracting by more than 40 per cent in 2018-19. FDI from mainland China stood at only $163.78 million in FY20. Chinese investments have attracted a lot of controversy recently after the Centre mandated in April that all FDI from China will need to have prior government approval.
In 2019-20, total FDI into India, which includes equity capital of unincorporated bodies, reinvest earnings, and other capital, stood at $73.4 billion, up from $63 billion a year ago, an 18 per cent jump.