Context:
An analysis of RBI data by The Hindu shows that in 2024-25, nearly 56% of India’s outward foreign direct investment (FDI) was routed through low-tax jurisdictions like Singapore, Mauritius, UAE, the Netherlands, UK, and Switzerland. This raises questions on taxation, regulatory arbitrage, and strategic corporate positioning.
Key Findings from RBI Data:
- Total outward FDI (2024-25): ₹3,488.5 crore.
- Top destinations:
- Singapore – 22.6%
- Mauritius – 10.9%
- UAE – 9.1%
India’s Outward Foreign Direct Investment (OFDI)
India’s Outward Foreign Direct Investment (OFDI) refers to investments made by Indian companies, firms, or residents in foreign countries. Unlike inward FDI, where foreign investors invest in India, OFDI involves Indian entities investing abroad to acquire assets, set up subsidiaries, or participate in joint ventures.
Forms of OFDI:
Indian companies can invest abroad in several ways:
- Greenfield Investment: Establishing a new business unit, subsidiary, or plant in a foreign country.
- Mergers & Acquisitions (M&A): Acquiring or merging with existing foreign companies.
- Joint Ventures: Forming partnerships with foreign firms to share capital, technology, and management.
- Portfolio OFDI: Sometimes, Indian firms invest in foreign financial assets, though this is more regulated under capital flows.
Key Features:
- Long-term commitment: Indian investors acquire significant ownership or control.
- Cross-border: Capital flows from India to other countries.
- Regulated: The Reserve Bank of India (RBI) and the Ministry of Commerce & Industry regulate OFDI through frameworks like the Foreign Exchange Management Act (FEMA), 1999.
Objectives of OFDI:
- Market Access: Entering new consumer markets abroad.
- Resource Access: Acquiring raw materials, technology, or skilled manpower.
- Diversification: Reducing dependency on domestic market or risks.
- Strategic Advantage: Acquiring global brands, intellectual property, or global supply chain integration.
Regulatory Framework in India:
- Automatic Route: No prior approval required if investment is within prescribed limits.
- Government Route: Requires approval for sensitive sectors or higher amounts.
- RBI Guidelines: Investments must comply with FEMA regulations and reporting requirements.
