It said that concentration of FDI sources, with Singapore and Mauritius accounting for 49% of cumulative inflows and the investment being disproportionately directed towards trading, services, and malls and real estate development, are the key issues.
This raises concerns about potential tax treaty abuses, where few firms may exploit India’s Double Tax Avoidance Agreements (DTAA) to reduce tax liabilities, contributing little to genuine economic development,” GTRI said in a report Thursday.
India attracted $44.4 billion in FDI in FY24, which is only 1.1% of its GDP, and lower than China’s $189.1 billion, Brazil’s $86.1 billion, Australia’s $61.6 billion, and Canada’s $52.6 billion, according to the World Development Report 2023, it said.
As per the report, India needs to address the four cost related components – labour, rate material, energy and financial costs.
It noted that in India, raw material costs are higher for non-traditional productions due to import dependence and high tariffs.“China benefits from lower costs due to large-scale local production and efficient supply chains, while Vietnam offers competitive costs with low or zero tariffs on imports,” GTRI founder Ajay Srivastava said.It suggested inviting top global firms as anchor manufacturers. These firms can drive technological innovation and improve productivity across sectors.
Investments involving technology transfer must be assessed for their potential to enhance local technological capabilities, especially in high-tech areas where India aims to close gaps.
The proposed framework to evaluate investment proposals must include strict checks to prevent risks to national security, particularly in defense, telecommunications, and infrastructure.
“Safeguarding these sectors is crucial for national security and resilience. It’s important to avoid increasing economic dependence on foreign entities, as this could compromise India’s strategic autonomy and decision-making in key industries,” Srivastava said.
He said that the financial costs in India are the highest, with lending rates around 9-10%, while China enjoys lower interest rates at 4-5%, and Vietnam’s rates are moderate at 7-8%.