Given below are two statements, one is labelled as Assertion (A) and the other as Reason (R).
Assertion (A) : During 2023 – 24, Singapore emerged as the largest source of FDI to India.
Reason (R) : Th

Question

Given below are two statements, one is labelled as Assertion (A) and the other as Reason (R).
Assertion (A) : During 2023 – 24, Singapore emerged as the largest source of FDI to India.
Reason (R) : The India – Mauritius Tax Treaty amendment has brought a major shift in countries as major sources of FDI to India.
Select the correct answer from the codes given below :

UnlockIAS · Accepted Answer

Correct — C, both (A) and (R) are true and (R) is the correct explanation of (A). The Assertion is a straight data point: on DPIIT's country-wise numbers for the financial year 2023-24, Singapore was the largest source of FDI into India at roughly USD 11.77 billion, with Mauritius second and the United States third. The Reason is also true as a statement about India's investment geography. For two decades Mauritius sat at the top of India's FDI table not because Mauritian savings were flowing to India but because the India–Mauritius Double Taxation Avoidance Agreement exempted Mauritius-resident companies from capital-gains tax in India, making the island the cheapest legal address from which to hold an Indian investment. The protocol of 2016 amended exactly that: India recovered the right to tax capital gains on Indian shares acquired on or after 1 April 2017, with a short transition at a concessional rate, and the India–Singapore treaty was realigned on parallel lines soon after. Once the tax edge went, so did the reason to route through Port Louis, and the composition of India's FDI sources shifted. Reading the two statements together, the examiner's chain is: the Mauritius treaty was amended → the treaty-driven advantage of the Mauritius route ended → the source-country table was reshuffled → Singapore came out on top. On that reading (R) does explain (A), and (c) is the marked answer. One honest correction a serious student should carry, because it will protect him in a harder UPSC-style version of this question. Singapore has in fact been India's largest FDI source in every year since 2018-19, not just in 2023-24, so the change (R) points to is the 2016 capital-gains amendment and its 2017 effective date — not the protocol signed on 7 March 2024, which inserted a Principal Purpose Test into the treaty and came far too late to have caused a ranking that was already six years old. The causal link in (R) is real but historical, and the option is defensible only because (R) is worded loosely, as 'the India–Mauritius Tax Treaty amendment' without a year.

Why the other options are wrong — (a) This is the most arguable of the wrong options and worth understanding rather than dismissing. Both statements are indeed true, so the first half is right; the option fails only on the second half. A candidate who insists that Singapore's rise is explained by its own attractions — a deep financial centre, a large stock of holding companies, high ease-of-doing-business, and the fact that a great deal of global capital is pooled there before deployment — would choose (a). The commission, however, treats the collapse of the Mauritius tax advantage as the operative cause of the reshuffle, and marks (c).  (b) Wrong, because the Assertion is factually correct. DPIIT's 2023-24 country-wise data put Singapore first among sources of FDI into India, at about USD 11.77 billion, ahead of Mauritius and the United States. There is nothing false about (A).  (d) Wrong, because the Reason is not false. The India–Mauritius DTAA was genuinely amended — the 2016 protocol restored India's right to tax capital gains on shares acquired from 1 April 2017 — and that amendment genuinely did change which countries dominate India's FDI table, ending Mauritius's long run at the top. You may quarrel with how tightly (R) explains (A), which is the (a)-versus-(c) argument, but you cannot call (R) untrue.

Concept: A Double Taxation Avoidance Agreement decides which of two countries may tax a given stream of income. Where a treaty gives the taxing right over capital gains only to the investor's country of residence, and that country levies little or no capital-gains tax, the treaty becomes an invitation to 'treaty shopping': a company incorporated there purely to hold shares in the other country, so that the gain escapes tax at both ends. India's old treaty with Mauritius did precisely this, which is why for years the tiny island appeared at the head of India's FDI table — much of that money was Indian, American or European in origin and merely resident in Mauritius for tax purposes, the phenomenon called round-tripping. Correcting such a treaty is a slow, negotiated business, and it changes investment maps for years afterwards.

State PCS 2024 Q54 — Economy PYQ with Answer

State PCS 2024 Q54 — Economy PYQ with Answer