However, in FY19 till December, Singapore has surpassed Mauritius with a share of 39%.
After hitting an all-time high of $35.94 billion in nine months of FY18, FDI equity inflow has contracted 7% in the same period in the current financial year—this has happened for the first time in the past five years. Falling FDI equity inflows will put strain on the overall investment climate in the country.
In fact, the growth in total FDI, which includes reinvested earnings, has moderated since FY17. As a proportion of GDP, FDI inflows have fallen from 3.4% of GDP in FY09 to 2.4% in FY18 and are likely to fall further to 2.3% in FY19.
Slowing global economy, US-China trade war, concerns over Brexit have impacted FDI in emerging markets, expecially India. Historically, Mauritius was the top source of FDI, accounting for 35.5% of the inflows in FY18. However, in FY19 till December, Singapore has surpassed Mauritius with a share of 39%.
The inflows from Mauritius declined 55% on a year-on-year basis whereas that from Singapore increased by 41% y-o-y. Higher inflows from these countries take place because of their tax haven status and India’s Double Tax Avoidance Agreement (DTAA) with these two nations.
While services still account for the bulk of FDI, structural reforms undertaken by the government in the last yew years saw FDI inflows to the industrial sector more than double to $17 billion in the five years to FY17. The government should come out with a more investor-friendly FDI regime is manufacturing and multi-brand retail. Moreover, FDI will have to rise if it is to fully fund the widening current account deficit this fiscal.