India experienced a significant contraction in Foreign Direct Investment (FDI) from the Cayman Islands and Cyprus during April-September of the current fiscal year, contributing to an overall 24% decline in FDI inflows, according to government data. FDI from the Cayman Islands decreased by 75% to $145 million during this period, down from $582 million in the same timeframe last fiscal year. Similarly, inflows from Cyprus contracted by over 95%, dropping to $35 million from $764 million in April-September 2022-23.
Experts attribute this sharp fall in FDI from tax havens like Cyprus and the Cayman Islands to heightened scrutiny of applications. Other tax havens such as Singapore and the UAE have also witnessed a decline in FDI inflows during the first half of 2023-24. The recent decrease in investments from these tax havens aligns with the overall fall in FDI during the same period.
Anjali Malhotra, Partner – Regulatory, Nangia Andersen India, suggests that the decline in FDI from tax havens could be linked to increased scrutiny of these investments. The overall decrease in FDI is attributed to factors such as increased interest rates due to high inflation in the US and other Western nations, exacerbated by geopolitical situations in Eastern Europe and West Asia.
Sanjay Kumar, Partner at Deloitte India, notes that the overall FDI outflow from Cyprus to the world has been declining at a compound annual growth rate (CAGR) of 62%. For the Cayman Islands, Kumar highlights that in October of the current year, the region was removed from the grey list by the Financial Action Task Force (FATF), which may result in positive FDI flow from the Cayman Islands in the coming times.
In total, FDI into India dropped by 24% to $20.48 billion in April-September 2023-24, with lower inflows in sectors such as computer hardware and software, telecom, auto, and pharma contributing to the decline.
