Economic Survey 2016 raises red flag on FDI from small nations

NEW DELHI: The Economic Survey has raised serious questions about large foreign direct investment ( FDI) from smaller nations, especially Singapore and Mauritius.

It has suggested that the government look at FDI from these countries carefully to find out whether they are being routed through them to avail benefits of DTAA.

There are wide variations in FDI inflows into India from different countries, it said, adding that Singapore, Mauritius, the Netherlands and the US account for the lion's share.

Out of FDI equity inflows of USD 24.8 billion during April-November of 2015-16, more than 60 per cent have come from two geographically small countries - Singapore and Mauritius.

"These inflows need perhaps to be examined more closely to determine whether they constitute actual investment or are diversions from other sources to avail of tax benefits under the Double Tax Avoidance Agreement (DTAA) that these countries have with India," it has said.

DTAA, commonly described as treaty shopping, helps investors route their investments with a view to minimise tax liabilities.

The government has liberalised FDI in over a dozen sectors, including defence, private sector banks, medical devices, construction, civil aviation and railway, to attract overseas investment.

Further, according to the Survey, Indian states show a clear regional disparity in FDI inflows.

Delhi, Haryana, Maharashtra, Karnataka, Tamil Nadu, Gujarat and Andhra Pradesh have together attracted more than 70 per cent of total FDI inflows to India during the last 15 years.

However, states with vast natural resources like Jharkhand, Bihar, Madhya Pradesh, Chhattisgarh and Odisha have not been able to attract foreign funds directly for investment in different sectors, it said.

"To make the recently launched 'Make in India' initiative a success, the states will have a critical role in facilitating FDI in different sectors," it added.