Whether Mauritius is still the Best Route for Foreign Investment in India?

In the last two decades, Mauritius emerged as the highest foreign investor in India accounting for almost 34% of the total foreign direct investment. The aim of this paper is to provide an in-depth analysis of how Mauritius, a small island country became the top most foreign investor in India during the period 2000 to 2017 and whether it continues to be the preferred route of channelizing foreign investment in India. The paper identifies that the Agreement on Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes of Income and Capital Gains between India and Mauritius (DTAC) signed in 1983 giving special favour to Mauritius was mainly instrumental in mobilizing foreign investment in India from Mauritius. The wide tax and investment treaty network of Mauritius along with low rate of domestic taxation, presence of Global Business Companies in Mauritius and close relation between the two countries based on diaspora and cultural bonding provided further backing. In 2016, DTAC was amended, India announced the implementation of General Anti Avoidance Rule (GARR) from 2017 and international tax paradigm also changed due to OECD project on Base Erosion Profit Shifting (BEPS) after 2015. The paper analyses the impact of these changes on FPI and FDI investments flow from Mauritius to India. It is observed that advantage of Mauritius in FDI and FPI flow has come down in 2018-19 due to amendments of the treaty and other regulatory changes. Its share in foreign investment is likely to come down further with the amendment of the DTAC taking full effect from April 2019. However, Mauritius has clear competitive advantage in channelizing debt investment to India as compared to its competitors like Singapore and the Netherlands.