FDI from tax havens falls sharply

FDI inflows from other tax havens such as Singapore, and UAE have also lost their sheen along with Cayman Islands and Cyprus during first half of 2023-24

Tighter Scrutiny

• Govt strict vigilant on FDI from tax havens
• Lower inflows in hardware, software, telecom, auto and pharma sectors
• Overall FDI outflow from Cyprus to the world fell 62%
• FDI into India declined 24% to $20.48 bn in H1/FY24

New Delhi: Foreign direct investment (FDI) into India from Cayman Islands and Cyprus contracted significantly during April-September this fiscal as the overall inflows declined by 24 per cent, according to the government data. FDI from Cayman Islands dipped 75 per cent to $145 million during April-September from $582 million in the same period last fiscal, the data showed. Similarly, inflows from Cyprus contracted by over 95 per cent to $35 million during the six-month period as against $764 million in April-September 2022-23.

Experts have attributed the sharp fall in FDI from Cyprus and Cayman Islands to a hightened scrutiny of applications.

Anjali Malhotra, partner (regulatory), Nangia Andersen India, said: “FDI inflows from other tax havens such as Singapore, and the UAE have also lost their sheen along with Cayman Islands and Cyprus during first half of 2023-24. The recent decline in investment from Cayman Islands and Cyprus may be attributed to enhanced scrutiny of these investments.”

The recent decline in investment from tax havens is also in line with an overall fall in FDI during first half of 2023-24. The reason for overall decline may be attributed to increased interest rates owing to high inflation in the US and other western nations exacerbated by geo-political situations in Eastern Europe and West Asia, she said.

Sanjay Kumar, Partner, Deloitte India, said: “It’s worth noting that the overall FDI outflow from Cyprus to the world has been declining at a CAGR (compound annual growth rate) of 62 per cent. For Cayman Islands. In October this year, the region was removed from the grey list by FATF (Financial Action Task Force) and this may result into positive FDI flow from Cayman Islands in coming times. FDI into India declined 24 per cent to $20.48 billion in April-September 2023-24, dragged by lower inflows in computer hardware and software, telecom, auto and pharma.”