UPSC Prelims 2010·GS1·economy·open economy

A great deal of Foreign Direct Investment (FDI) to India comes from Mauritius than from many major and mature economies like UK and France. Why?

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Last updated 8 Jul 2026, 4:39 pm IST
  1. AIndia has preference for certain countries as regards receiving FDI
  2. BIndia has double taxation avoidance agreement with MauritiusCorrect
  3. CMost citizens of Mauritius have ethnic identity with India and so they feel secure to invest in India
  4. DImpending dangers of global climatic change prompt Mauritius to make huge investments in India

Explanation

The correct answer is B because India and Mauritius signed a Double Taxation Avoidance Agreement DTAA that provided significant tax advantages to investors. Under this treaty, capital gains arising from the sale of shares in Indian companies by entities based in Mauritius were taxed only in Mauritius. Since Mauritius has a zero or very low capital gains tax rate, foreign investors from across the world set up shell companies or subsidiaries in Mauritius to route their investments into India. This practice, known as treaty shopping, allowed investors to avoid paying higher taxes in India, making Mauritius the largest source of FDI inflow for many years. Although the treaty was amended in recent years to introduce source based taxation, it remains the historical reason for the high volume of investment.

economy: A great deal of Foreign Direct Investment (FDI) to India comes from Mauritius than from many major and mature economies
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