FDI into India from Cayman Islands, Cyprus see steep fall

India saw a significant drop in foreign direct investment (FDI) from the Cayman Islands and Cyprus in the first six months of this fiscal, dragging down overall FDI, government data showed.

FDI from the Cayman Islands and Cyprus fell 75% and by over 95%, respectively, in April-September, leading to a 24% slump in foreign investments, data released by the Department for Promotion of Industry and Internal Trade showed.

Specifically, FDI from the Cayman Islands fell sharply to $145 million when compared with the $582 million in the same period of the past fiscal year. Cyprus showed a similar trend, with its FDI plummeting to $35 million, a stark contrast to the $764 million received a year ago, the data showed.

Analysts suggest that this steep decrease is likely due to the increased scrutiny in the application process for investments from these areas, while also pointing out that FDI inflows from other tax havens such as Singapore, and the UAE have also lost their sheen.

To be sure, the Cayman Islands was removed from the Financial Action Task Force’s (FATF’s) grey list in October, potentially boosting future FDI flows into India from the region. Countries in the FATF’s grey list come under increased monitoring due to concerns about weaknesses in their anti-money laundering and anti-terrorist financing frameworks. Being removed from this list can be seen as a positive development for the Cayman Islands, as it indicates improvements in their regulatory environment.

FDI inflows stood at $45.15 million in 2014-15, and increased to $60.22 million in 2016-17 before climbing to the highest ever level of $84.835 million in FY22.

FDI inflows in the second quarter of the current fiscal (June to September) were at $15.34 billion, the data showed.

Between April 2021 and September 2024, a substantial portion of FDI into India originated from Mauritius (25%), Singapore (23%), and the US (10%). These countries have consistently been significant sources of FDI for India since April 2000.

In FY23, the top sectors attracting the most FDI equity included services at 16%, computer software and hardware at 14%, and trading, which received 6%.

India’s FDI declined 24% to $20.48 billion in April-September, mainly due to reduced investments in sectors such as computer hardware and software, telecommunications, automobiles, and pharmaceuticals, data showed.