Enhancing India CARIFORUM Economic Relations and Prospects for Cooperation

FDI Inflows in CARIFORUM The Caribbean governments generally employ a myriad of preferential tax measures or fiscal policy tools to achieve specific socio-economic and in some cases environmental objectives. These tools incentivize savings and investment into local economies in the region, promote specific industries, discourage or promote the consumption or production of specific goods and services, support business growth and development, job creation and the protection of the environment, among others. The implementation of these incentives may lead to a reduction in government revenue streams from taxes, but their use is supported throughout the region due to the perceived benefits that far outweigh the costs. The Caribbean is known globally for its significant generosity in tax benefits, particularly to new investors as the region seeks to compensate for the perceived competitive disadvantages related to geographical size, market size, relatively low internal demand and significant competition from neighboring territories. In 2020, the FDI inflows to the region have fallen by 16.7 percent to reach US$ 5.9 billion. The reasons for this fall in the FDI inflows can be broadly attributed to a collapse in tourism led by the coronavirus pandemic and a staggering fall in international commodity prices. Thus, both the service dependent and the commodity dependent economies have taken hits in terms of investment inflows. FDI inflows are expected to recover to the pre-crisis level only by 2023 (Figure C) .

Figure C: FDI Inflows in the CARIFORUM Countries (US$ billion)

Source: UNCTAD FDI Data; India Exim Bank Analysis

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Enhancing India-CARIFORUM Economic Relations and Prospects for Cooperation