Q1 (CDS-II/2010) Economy › External Sector & Trade › External Sector & Trade

Statement I : India receives the highest share of FDI inflow from Mauritius. Statement II : There is a Double Taxation Avoidance agreement between India and Mauritius.

Both the statements are individually true and statement II is the correct explanation of statement I

Both the statements are individually true, but statement II is not the correct explanation of statement I

Statement I is true, but statement II is false

Statement I is false, but statement II is true

Result

Your answer: — · Correct: A

Explanation

Statement I is true: Historically, Mauritius was the leading source of Foreign Direct Investment (FDI) into India. During the period around 2010, it consistently accounted for the highest cumulative share of total FDI inflows.

Statement II is true: India and Mauritius share a Double Taxation Avoidance Agreement (DTAA), which was signed in 1982.

Relationship: Statement II correctly explains Statement I. The DTAA provided a tax loophole where capital gains tax on investments in India was exempted for Mauritius-based entities. This made Mauritius the most attractive destination for foreign companies to set up shell companies to invest in India (a practice known as Treaty Shopping), thereby leading to the highest share of FDI coming through this route.

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Statement I : India receives the highest share of FDI inflow from Mauritius. Statement II : There is a Double Taxation Avoidance agreement between India and Mauritius.

Explanation

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