India Links: Sensitive Treaty Talks Open Way To Loosen Historical Ties

Mauritians of Indian stock are intensely proud of the link. During recent celebrations marking India’s independence from Britain, the English language press was full of articles flattering India on its development since Jawaharlal Nehru spoke of its “tryst with destiny” back in 1947.

Privately, the grumblings of Mauritian politicians and businesspeople about the relationship suggest that the island faces a tryst of its own. It might not be with destiny – since such are the commercial and cultural ties that they are unlikely to snap irrevocably – but at least with the recognition that they might be relaxed as Mauritius looks elsewhere to find friends, notably in Africa.

“Enough is enough” is a summary of the reaction in Mauritius as India questions the longstanding tax treaty between the countries and presses Mauritius to curb its offshore industry. Mauritians call it their “global business” industry, a less loaded term for a regime that offers favourable tax rates and a well ordered base for international companies, many of which use the island to invest in India.

“This is how business is carried out globally,” says Rama Sithanen, former finance minister and now head of International Financial Services, which helps companies to set up operations in Mauritius in order to invest elsewhere. Most companies do not directly invest into a country, they look for a “tax-efficient jurisdiction ... We offer that with everything above board”.

It is unfair of the Indians to suggest Mauritius is nothing but a tax haven, Mr Sithanen adds. The Mauritian government “needs to have a non-discrimination clause put in the treaty”.

In his view, the long negotiations with India on the issue need to be “raised to a higher level” than that of fiscal bureaucrats and minor officials. To finance ministers? “Higher still”.

The two countries’ leaders have to get to grips with this problem and rise above the petty quarrels of those beneath them: “This situation has to result in a win-win for both sides.”

One perception is that India’s attempted crackdown amounts to an effort to cut off its nose to spite its face. “Who is to say that the companies who base themselves here to invest in India would do so if we were not here to facilitate the exercise,” comments one business observer.

Poor communication may be one factor to blame for the fiery feelings generated by the question. “I invited some Indian press people to visit here,” recalls Nikhil Treebhoohun, chief executive of Global Finance Mauritius, a body representing the financial services sector. “No foreigner can just arrive here with a suitcase of money to invest and I asked them why they were publishing stories that were factually incorrect. They said no one [from Mauritius] had told them the stories were incorrect.”

The Port Louis view is that the Indians are making far too much of a fuss. With investment channelled into India via Mauritius, the Indians get “jobs, taxes, growth”, says Mr Treebhoohun. “All they miss is the capital gains when an asset is sold.”

The Indian position is thought to be political. With elections in India next year, Mauritius is an easy scapegoat for those on the campaign trail. As a result, the feeling grows that Mauritius should hit back.

“We should leverage our position,” says Kee Chong Li, a leading character in the Mauritian opposition. “We stick our hand up in the UN whenever India wants us to. Our navy is run by India. From Mauritius, India can run the Indian Ocean. We can play naughty child. We can tell them we have Chinese friends.”

“Something has broken in the relationship,” says Alan Ganoo, opposition leader in parliament. “Mrs [Indira] Gandhi called Mauritius ‘Little India’ [and we] look on India as ‘Mother India’ ... but something emotionally has changed.”

Does Mauritius face a kind of 1776 moment, with a tax argument rising to the level of irreparable breach as happened between the US and Britain? Talks continue on the treaty, with Mauritius feeling both comfortable in not conceding key ground and that “there will be convergence”, says finance minister Xavier-Luc Duval.

India is vulnerable because of its own economic shortcomings: its current account crisis, for example, and weakness of the Indian rupee. Whenever India makes too much of a noise about Mauritius, the Indian stock market falls in fear of the prospects for investment by Mauritian-based companies in India.

Accommodation is likely, say business chiefs, not least because Mauritius, wary of Indian criticism, looks increasingly towards Africa as a focus for its offshore efforts. Indian business people will want to do business in Africa, they argue, and use Mauritius as a base for their operations.

The chances of either side definitively saying “enough is enough” therefore may be limited. More likely will be the urge to acknowledge that out of this argument both Mauritius and India can enjoy a “win/win”.