Foreign direct investment (FDI) inflows from Mauritius seem have made a comeback this year. They accounted for 43 per cent of total FDI flows in April-February 2012-13 against 33 per cent in the same period last year.

According to the Department of Industrial Policy and Promotion, total FDI equity inflows stood at $20.8 billion during April-February 2012-13 compared with $33.5 billion during the same period last year.

FDI equity inflows into India declined 38 per cent during April-February 2013 over the previous year. While this was the worst decline in percentage terms that India has seen in a decade, flows from Mauritius saw just a five per cent fall.

FDI flows from Mauritius were on the wane last year because of fears that the India-Mauritius double taxation avoidance convention (DTAC) would be re-negotiated. The treaty provides that tax on capital gains arising out of sale of shares can be levied only in the resident country of the investor.

As Mauritius does not levy any capital gains tax, an investor routing his investments through Mauritius escapes capital gains tax.

If fears about a new treaty impacted flows via Mauritius last year, why have they surged this year?

“The treaty between India and Mauritius has been under consideration for a few years now. Thus there are no specific changes in the tax aspect to deter investments into India. Instead, specific deals seem to lead to significant changes in the share of FDI from a country,” says Mukesh Butani, Chairman BMR Advisors.

Deals tip the balance

In fact, the spike in inflow from Mauritius does seem to be a one-off.

Of the $8.9-billion FDI inflows from Mauritius, a single deal amounted to $2.8 billion, one-third of the total.

This investment by Blue Ridge Holdings into Blue Ridge Hotels, has tipped the balance in favour of Mauritius this year, excluding which the share of the region would have been 33 per cent. The other top deals include Vodafone Mauritius’ investment into Bharti Infotel for $482 million and BC India’s investment of $325 million into Hero Investments.

While Mauritius saw a higher share of FDI, the trend across other countries was less inspiring. Among the top losers are Singapore and UK whose share in the total inflows halved from the previous year.

Japan maintained its share of 10 per cent. Among the other countries which contributed less than five per cent to the total inflows, flows through Cyprus saw a decline of 68 per cent, while Germany plummeted 59 per cent over the last year.

The Netherlands stood out in the group, FDI from it growing 37 per cent in the current year. The share of inflows from this country doubled from four per cent last year.

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