By Yashaswani Chauhan

Copyright thehindubusinessline

Foreign direct investors have typically preferred to route their investments into India through offshore financial centres such as Mauritius and Singapore.

But in a break from the past, the United States emerged as the largest source of foreign direct investment (FDI) equity inflows into India in the first quarter of FY26.

The US contributed a record ₹48,104 crore to India’s FDI, registering a 282 per cent jump from the same period last year. Singapore followed with ₹39,284 crore, while Mauritius slipped to third place at ₹17,791 crore.

Gross FDI inflows rose 18 per cent year-on-year in Q1 FY26 to ₹1.59 lakh crore, according to DPIIT data. The surge in US investments is due to changes in regulations and higher scrutiny in Singapore and Mauritius, as well as lower domestic tax rates, stable double tax treaties, and a more consistent tax regime in India, say experts.

Riaz Thingna, Partner at Grant Thornton Bharat, said the jump in US inflows reflects “the growing confidence of US investors in India’s economic and political stability,” with opportunities spanning technology, manufacturing, and services. He added that the rise of Global Capacity Centres (GCCs) further illustrates this trend.

Singapore and Mauritius slow down

While Singapore remains a key investor, its inflows rose only 20 per cent, far outpaced by the US. Experts attribute this slowdown to tighter regulatory scrutiny.

Historically, Singapore benefited from its role as a financial intermediary, particularly after the India-Mauritius tax treaty amendments in 2016.

But recent tax and compliance changes, such as stricter substance requirements and enhanced oversight under India’s FDI and FEMA frameworks, have reduced its arbitrage advantage.

Mauritius, too, saw inflows fall 33 per cent this quarter to ₹17,791 crore, partly due to the Principal Purpose Test under the tax treaty, which requires investors to demonstrate a commercial intent for routing funds through the island nations.

In contrast, newer offshore hubs are gaining ground. The Cayman Islands attracted ₹5,790 crore, up 268 per cent from a year ago, while Cyprus nearly doubled its inflow to ₹9,514 crore. “Cayman Islands is gaining traction due to its zero-tax regime and flexible fund structuring laws,” said Thingna. “Cyprus too remains attractive, though treaty amendments and substance requirements are gradually pushing investors toward jurisdictions with operational efficiency.”

Globally, India’s resilience stands out. China, though still the largest FDI recipient, has seen inflows decline since 2024, while Brazil posted steady gains on the back of renewable energy. “India’s continued economic stability over a significant period gives it a strong edge over peers like Brazil, even as China remains formidable despite political headwinds,” Thingna noted.

Experts caution, however, that the US lead may not be guaranteed. Investor appetite will also be shaped by geopolitical developments, particularly on trade tariffs. As Thingna put it, “new tariff posturing could further fuel direct investments in the short run.”

Published on September 15, 2025