Regime regarding repatriation, dividend, taxation, challenge for FDI in India: former Finance Secy Garg

Indian government has been putting in efforts to attract FDI in the country. And In 2021-22, gross foreign direct investment (FDI) inflows into India increased for the ninth consecutive year to $83.5 billion, an all-time high. Subhash Chandra Garg, former finance secretary highlighting the challenges for FDI in India told Business Today that technology regimes and the FDI regime including taxation, repatriation were the two constraints which needed to be attended to by the government.

“In my opinion, Technology regimes and the FDI regime were the two constraints which needed to be attended to by the government. Third, what is the regime regarding repatriation, dividend, how would you tax them. Those are the other side which governed the FDI investors. Suppose you don’t allow dividend repatriation then people will not come,” Garg highlighted.

Throwing light on the record FDI of $83.5 billion, Garg said, ”When we say $83 billion FDI, it has two components, new cash flow and retained earnings, so the UNCTAD report considers only new inflows, not the retained earnings, that is why in UNCTAD report India received only $45 billion FDI in 2021. The rest is the retained earnings.”

Garg added further that if you look at the report the new inflows were down by $3-4 billion, while gross inflows went up by $3-4 billion which means $6-7 billion increase was accounted for on retained earnings.

According to the UNCTAD report, India jumped one position to 7th among the top recipients of FDI in the last calendar year (2021) despite FDI inflows into the country declining. In its World Investment Report released in June, UNCTAD said FDI inflows into India declined to $45 billion in 2021 from $64 billion in the preceding year. Among the top 10 host economies, only India saw a decline in its inflows. However, outward FDI from India rose 43 per cent to $15.5 billion in 2021.

Throwing light on the FDI target of $100 billion, the former finance secretary said that $100 billion FDI is not a great thing, in the next three to 4 years India will be closer to that only. “India should aim for much higher target rather than $100 billion FDI, which we will achieve easily going forward,” he said.