India's Outward FDI: A Strategic Shift Towards Low-Tax Jurisdictions
UPSC Relevance
Prelims: Indian Economy (External Sector - Foreign Direct Investment (FDI), Balance of Payments, Capital Account); International Economy (Tax Havens, Base Erosion and Profit Shifting - BEPS).
Mains:
General Studies Paper 2 (International Relations & Governance): Bilateral, regional and global groupings and agreements involving India and/or affecting India’s interests (related to international tax agreements).
General Studies Paper 3 (Economy): Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment; Investment models. The reasons for Indian companies investing abroad are a key topic.
Key Highlights from the News
More than half of the investments made by Indian companies abroad (Outward FDI) are routed through low-tax jurisdictions such as Singapore, Mauritius, and UAE, according to Reserve Bank of India (RBI) figures.
In 2024-25, 56% of Outward FDI went to such countries. This increased to 63% in the first quarter of this fiscal year.
Economists state that this is not merely aimed at tax evasion, but also serves as a strategic imperative for Indian companies.
Key Strategic Reasons:
These countries act as a platform for investment in another third country.
It is easier to attract foreign partners and investors, as they receive protection from India's complex FDI laws and tax systems.
These countries offer stable and predictable tax stability laws.
Provides more flexibility in transferring funds and making investments.
High US tariffs imposed on India may further encourage Indian companies to set up units abroad in the future.
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