As on October 31, Singapore-based offshore funds held ₹4.89 lakh crore worth of securities in India compared to ₹4.69 lakh crore for Mauritius-based funds.
The largest source of FPI inflows is the United States of America, holding ₹20.1 lakh crore worth of securities as of October 1.
Back in 2016, India reviewed its tax agreements with both Mauritius and Singapore. During that time, Mauritius-based FPIs held ₹4.3 lakh crore worth assets which was nearly double that of Singapore’s ₹2.4 lakh crore.
Since then, Singapore has been gaining advantage over its peers. This process accelerated post 2021 when Singapore proposed the variable capital company (VCC) scheme for fund management industry.
Under VCC scheme, companies have been permitted to freely redeem shares and pay dividends using their assets, which is not the case for regular funds. Also, VCCs aren’t required to disclose any data to the public. The scheme also introduced easier regime for funds willing to redomicile themselves in Singapore.
“The Singapore fund regulatory regime has witnessed a significant liberalisation with the advent of its successful VCC regime,” said Tejesh Chitlangi, senior partner at law firm IC Universal Legal. “The ease of hiring third-party fund manager entities and permissibility of white label products in Singapore has helped the jurisdiction in attracting more funds than Mauritius,” he said.
Singapore is especially a dominant player on the debt funds. The island nation accounts for nearly one-third of total debt inflows into India with Singapore-based FPIs owning ₹1.1 lakh crore worth debt papers in India – which is double to that of Mauritius.
“Singapore is most favourite jurisdiction for FPIs’ debt investments in India currently,” said Bhavin Shah, partner at auditing major PWC. “Most investment banks, which were earlier investing through Mauritius, have over time set up their regional operations in Singapore. This is largely instrumental for gradual reduction of FPI investments through Mauritius and corresponding increase for Singapore.”
Shah, however, added that in the next five years, International Financial Services Centre (IFSC), Gift City, Gujarat, could replace Singapore as the favourite jurisdiction for FPIs to invest in Indian debt securities.
Market participants said the rise of Singapore has come at the cost of Mauritius, which has been losing sheen as an investment destination in the last few years. In 2020, Mauritius was placed under the grey list of Financial Action Task Force (FATF) – a major red flag for international companies.
“What has hurt Mauritius is the tightening of its fund regulatory and know your customer (KYC) regimes in an attempt to come out of FATF grey listing, which whilst got achieved but came at the cost of new set-ups and losing ground to Singapore, which liberalised its regime at the same time,” Chitlangi of IC Universal said.
Post 2017, India signed up for base erosion and profit sharing (BEPS) programme under the Organisation for Cooperation and Development (OECD), an intergovernmental agency. This programme is aimed at closing the tax loopholes across major jurisdictions of the world that have been exploited by large multinational companies.
Through BEPS and other bilateral agreements, India has closed all tax arbitrage opportunities. India has also adopted anti-avoidance standards that prohibit funds and companies from choosing an overseas jurisdiction purely for tax reasons.
Due to this enhanced security, multinational companies and funds have started choosing jurisdictions that are viewed favourably by global regulators. Singapore — being the fund management hub of Asia Pacific — gained immensely from this change.
