Foreign Direct Investment in India and Role of Tax Havens
Governments across the world are trying to attract Foreign Direct Investment (FDI), as a policy tool to promote growth, employment, etc. India has also adopted policies for promoting FDI and has seen significant increase in FDI in the decade of 2000 and onwards. In this context, the paper looks at the FDI flows to India between 2004-14. It analyses where the FDI is coming from, especially countries who are regarded as tax havens such as Mauritius and Singapore, and tries to explain the reasons behind it.
The paper makes use of a unique dataset which identifies the ultimate parent/controlling entity of the individual FDI inflows, and thus able to identify which FDI inflow is coming directly from the home country of investor and which are routed through the other country. To find the reasons behind the routing of FDI through a third country, it analyses the secrecy aspect as well as the tax agreement of that country with India to find the linkages between secrecy, tax agreements and routing of FDI to India
