Why in news?
Recent data show that a large share of India’s outward foreign direct investment (OFDI) is routed through a handful of low‑tax jurisdictions. Policymakers are examining the implications for tax policy and regulation.
Key findings
- Over half of India’s outward FDI flows through six jurisdictions. Singapore, Mauritius and the United Arab Emirates together account for more than 40 %.
- Nearly 60 % of investments via these jurisdictions are for joint ventures, raising questions about whether they are merely transit points to other destinations.
- Indian companies use these locations to access capital, favourable tax treaties and business‑friendly regulations.
Concerns
- Tax erosion: Routing investments through tax havens can reduce India’s tax revenues.
- Opacity: Complex ownership structures make it difficult to trace ultimate beneficiaries and detect money laundering.
- Competitiveness: If too many Indian firms shift capital abroad, domestic investment may suffer.
Policy considerations
- Simplify tax laws and remove uncertainties that push businesses towards jurisdictions with greater clarity.
- Review and renegotiate tax treaties to prevent abuse while continuing to attract genuine investment.
- Enhance monitoring of outward investments to identify round‑tripping (bringing back money disguised as FDI).
- Promote ease of doing business domestically so companies do not feel compelled to incorporate overseas.
