India’s Outward FDI Trends - Shift Towards Tax Havens

Sept. 14, 2025

Why in the News?

Nearly 60% of India’s outward FDI is now routed through tax havens like Singapore, Mauritius, and the UAE, reflecting both tax advantages and strategic global expansion needs.

What’s in Today’s Article?

Introduction

India’s outward foreign direct investment (FDI) has grown significantly over the past two decades, reflecting the ambition of Indian companies to expand their global presence.
While domestic reforms have supported inbound investment, outward investment trends reveal a distinct preference for low-tax jurisdictions.
According to Reserve Bank of India (RBI) data, nearly 60% of India’s outward FDI in 2023-24 was routed through tax havens such as Singapore, Mauritius, and the UAE.
This pattern highlights not only tax efficiencies but also strategic advantages for Indian companies seeking global expansion.

India’s Outward Investment Trends

India’s outward FDI has witnessed structural changes in both volume and destination preferences.
From traditional investments in manufacturing and energy, Indian firms have diversified into IT services, pharmaceuticals, consumer goods, and infrastructure globally. The main objectives driving this trend include:

Access to new markets: Indian companies are establishing subsidiaries abroad to tap into consumer demand in Europe, the U.S., and Africa.
Technology acquisition: Outward investments enable Indian firms to access advanced technologies, particularly in healthcare, automotive, and clean energy.
Strategic partnerships: Cross-border mergers, acquisitions, and joint ventures strengthen Indian firms’ positioning in global supply chains.
Risk diversification: By expanding abroad, companies hedge against domestic regulatory and market volatility.

The government has supported outward FDI by easing regulatory approvals, enhancing bilateral investment treaties, and facilitating credit support through institutions like EXIM Bank.
However, the heavy reliance on tax havens underscores a complex mix of regulatory arbitrage, strategic structuring, and global investor preferences.

News Summary

Recent data shows that 56% of India’s outward FDI in 2023–24, amounting to about Rs. 1,946 crore out of a total of Rs. 3,488 crore, flowed into low-tax jurisdictions such as Singapore (22.6%), Mauritius (10.9%), and the UAE (9.1%).

Image Caption: Outward Investment Trends

In the first quarter of 2024-25, this figure rose further, with 63% of outward FDI routed through these jurisdictions. Experts clarify that this is not solely for tax avoidance but also for strategic reasons:

Global investor comfort: International partners prefer investing in entities located in jurisdictions with stable tax laws and flexible fund transfer regimes.
Strategic structuring: Using special-purpose vehicles in hubs like Singapore helps Indian companies attract investors and manage stake dilutions effectively.
Joint ventures: Almost 60% of outward FDI in these low-tax hubs in July 2025 was in joint ventures, showing their role as neutral platforms for partnerships.

Experts also note that rising U.S. tariffs on Indian exports could push more firms to establish subsidiaries abroad to mitigate trade risks.
Thus, while India continues efforts to curb profit shifting to tax havens, the outward FDI trend reflects a blend of tax advantages and global business strategy.

Conclusion

India’s outward FDI trajectory highlights a dual narrative: on one hand, concerns about tax revenue leakage and regulatory arbitrage; on the other, the strategic necessity for Indian firms to leverage tax-efficient jurisdictions to expand globally.
With nearly 60% of investments flowing through tax havens, it is evident that these destinations serve as both gateways for third-country expansion and buffers against global trade risks.
Going forward, India’s challenge will be to balance regulatory oversight with the need to support its companies’ global ambitions.