FDI India: Cayman Islands Becomes 5th Largest Investor, Says DPIIT

According to data released by the Department for Promotion of Industry and Internal Trade (DPIIT),  Cayman Islands, which is a UK Overseas Territory has become the fifth largest investor in India, with foreign direct investment (FDI) from the nation increasing over three-fold to USD 3.7 billion in the fiscal year 2019-20.

In the fiscal year 2018-19, the country was a recipient of foreign direct investments worth one billion from Cayman Islands and USD 1.23 billion in 2017-18.

Similarly, foreign investments from Cyprus also increased by about three-times to USD 879 million in the last financial year from USD 296 million in 2018-19. It was USD 417 million in 2017-18, the DPIIT data indicated.

According to experts, Cayman Islands has now become one of the most favoured jurisdictions for routing foreign investments thanks to the absence of direct taxes costs— which is one of the biggest reasons why developed economies like UK, France, and Germany are now falling behind.

"In fact, three times year-on-year leap in FDI inflows from Cayman Islands must be viewed as an indicator of how this small offshore tax haven has emerged as a favourite intermediate investment holding jurisdiction by investors across the world rather than India gaining higher popularity as an Investment destination," Nischal Arora, Partner- Regulatory, Nangia & Co LLP said.

"Additionally, investments from tax havens do carry a comparatively higher perceived risk of laundered money, round tripping issues etc, again, which is bound to make the regulators wary of this new trend...In light of (certain) gaps in ascertaining complete beneficiary details, one may expect the government to come out with measures relating to carrying out additional scrutiny or monitoring of investments from such tax neutral jurisdictions," Arora added.