FDI: Is Mauritius losing out?
By Venugopal Pillai
Mauritius, the traditional hub through which foreign investment in India is routed, appears to be losing its importance, if foreign direct investment (FDI) for the first five months of 2001 is any indication.
During January to May, of the total approved FDI of Rs 12,748 crore, as much as 31 per cent (or Rs 3,955 crore) came from the UK. The US followed with 22 per cent (or Rs 2,750 crore) while the Netherlands finished third with Rs 2,352 crore.
Mauritius could only manage fourth spot with Rs 1,283 crore of FDI approvals, representing 10 per cent of India's total. For a country which enjoyed a share of 15 per cent (32 per cent, without Euro Issue approvals) during January-May 2000, this is a sizeable loss.
FDI from Mauritius is of a dubious nature. It is tacitly understood that several countries route their investments through Mauritius to avail of tax relief offered by its government. However, this may soon change with the Mauritius government contemplating complete withdrawal of extant tax benefits on FDI routed through that country.
Over the past decade of liberalisation (January 1991 till December 2000), Mauritius accounted for an overwhelming 17.5 per cent of the total FDI inflows. Further, it boasted of a superlative inflow-approval ratio of 53 per cent, much above the overall 36.2 per cent. It may be mentioned that the US led in terms of approvals, accounting for 20.4 per cent of the aggregate FDI approvals during the decade. However, in terms of FDI inflow, it lagged behind Mauritius by a wide margin.
Reverting to FDI approvals during January-May 2001, UK seems to have strong potential for their inflows into India, in the near future. The Rs 3,955 crore worth of approvals in just five months have by far exceeded the combined approvals in the whole of 1999 and 2000.
On a broader canvas, FDI approvals in 2001 carry favourable implications for the projects investment scenario in India. Overall FDI approvals grew by a whopping 56 per cent in 2001. More importantly, the growth was on account of a phenomenal increase in the number of foreign collaborations. Other sources of FDI, Euro Issues, in particular, had only a diminutive share. While FDI approvals underlying foreign collaborations leapfrogged from Rs 3,951 crore in 2000 (January-May) to Rs 12,224 crore in 2001, Euro Issue approvals plunged from Rs 3,817 crore to a trifling Rs 259 crore, by the same comparison.
FDI inflows rose by a modest 14 per cent from Rs 5,919 crore in the first five months of 2000 to Rs 6,748 crore in 2001. Akin to approvals, most of the inflows underlined foreign collaborations. However, since the growth in FDI approvals outpaced that of inflows, there was moderate erosion in the inflow to approval ratio, from 72 per cent in 2000 (January-May) to 53 per cent in 2001. Historically, FDI inflows into India have been 37 per cent of approvals.
In the coming months, one can look forward to an enrichment of the FDI inflow-approval ratio, albeit due to intrinsically invalid reasons. Between the period June 20 to August 8, 2001, no FDI proposal was approved owing to some difficulties at the Foreign Investment Promotion Board. With FDI inflows expected to continue unmindfully, one can technically expect a dramatic jump in the inflow-approval ratio during June and July 2001.
The Mauritius government is considering withdrawing tax benefits on FDI