India received the highest foreign direct investment (FDI) from Singapore in 2023-24 even as overseas capital inflows into the country contracted by about 3.5 per cent due to global economic uncertainties, according to the latest government data.

Though FDI from Singapore has dipped by 31.55 per cent to USD 11.77 billion in 2023-24, India has attracted the maximum inflows from that country, the data showed.

During the last fiscal, FDI equity inflows decreased from major countries, including Mauritius, Singapore, the US, the UK, UAE, Cayman Islands, Germany, and Cyprus.

However, investments increased from the Netherlands and Japan.

Since 2018-19, Singapore has been the largest source of such investments for India. In 2017-18, India attracted the maximum FDI from Mauritius.

According to experts, after the India-Mauritius tax treaty amendment, Singapore has emerged as the preferred jurisdiction for investment in India.

Rumki Majumdar, Economist, Deloitte India, said that as one of the world’s prominent financial hubs, Singapore attracts global investors who want to invest in Asia.

“Recently, India’s initiatives such as amendments by the SEBI to the REIT Regulations 2014 have created new opportunities for Singapore-based investors, which is why India is likely seeing high FDI from Singapore,” Majumdar said.

She also hoped that FDI into India would pick up in the latter half of 2024-25.

Sanjiv Malhotra, Senior Advisor, Shardul Amarchand Mangaldas & Co, said that Singapore and Mauritius are jurisdictions used by global investors to route their money into developing economies such as India.

“While there are many geo-economic and political factors why Singapore has gained more prominence in the recent past, the primary reason for it topping the FDI charts for India is tax,” Malhotra said, adding Singapore has a very competitive domestic tax regime and efficient regulatory set-up.

Historically, the double tax avoidance agreement between India and Singapore provided for many beneficial provisions including capital gains exemption in India for investments made from Singapore and even though this provision has been amended, Singapore still is a credible place to create operations with substance to invest further in South-East Asia (including India), he added.

Malhora added that in 2023-24, India witnessed a drop in FDI primarily due to the global uncertainty on account of the disturbances in the Middle-East and Europe.

“Hopefully FDI inflows to India may improve in 2024-25 (from 2023-24) but they may still remain below 2022-23 levels. A stable government post elections surely will help the cause of more FDI into India but I see the global headwinds to be too strong as of now,” he said.

Anindya Ghosh, Partner, INDUSLAW, too said that prior to 2016, Mauritius was a preferred jurisdiction for foreign investment in India due to the significant tax advantage it offered as a low-tax jurisdiction for routing investments.

However, in 2016, India amended its tax treaty with Mauritius to introduce a source-based taxation regime for capital gains, eliminating the tax advantage and reducing the attractiveness of Mauritius as an investment hub for India.

After the India-Mauritius tax treaty amendment, Singapore has emerged as the preferred jurisdiction for foreign investment in India due to various factors, Ghosh said.

She added that many multinational companies have their regional headquarters or holding companies based in Singapore, making it a convenient location for channelling investments into India. She added that global economic conditions, geopolitical tensions, and domestic policy developments may influence the overall FDI inflows in 2024-25.

FDI equity inflows in India declined 3.49 per cent to USD 44.42 billion in 2023-24 as against USD 46.03 billion in 2022-23.

The total FDI -- which includes equity inflows, reinvested earnings and other capital -- declined marginally by one per cent to USD 70.95 billion during 2023-24 from USD 71.35 billion in 2022-23.

In 2021-22, the country received the highest ever FDI inflows of USD 84.83 billion.

Sectorally, inflows contracted in services, computer software and hardware, trading, telecommunication, automobile, pharma and chemicals.

In contrast, construction (infrastructure) activities, development and power sectors registered a healthy growth in inflows during the period under review.

FDI from Mauritius dipped to USD 7.97 billion in the last fiscal from USD 6.13 billion in 2022-23.

The US is the third largest investor in India in 2023-24 with USD 4.99 billion foreign investments, though it is down from USD 6 billion in 2022-23.

It was followed by the Netherlands (USD 4.93 billion), Japan (USD 3.17 billion), the UAE (USD 2.9 billion), UK (USD 1.2 billion), Cyprus (USD 806 million), Germany (USD 505 million), and Cayman Islands (USD 342 million).

As per the data, Mauritius accounts for 25 per cent of the total FDI which India has received during April 2000 to March 2024 (USD 171.84 billion), while Singapore’s share is 24 per cent (USD 159.94 billion). The US accounted for 10 per cent of total overseas investments with USD 65.19 billion during the period.

Foreign investments are crucial for India to overhaul its infrastructure such as ports, airports and highways to push growth.

FDI also helps improve the country’s balance of payments situation and strengthen the rupee value against other global currencies, especially the US dollar.