Better tread carefully on thin ice 


The newly appointed Minister of Industry and Commerce has stated that in view of the fact that the deal with the Indian company, Mangalore Refinery and Petrochemicals Ltd, is coming to term shortly, he was proposing to go into the open market for our future supplies of oil. This may convey the impression that we would not be having a fair deal by going it bilaterally as it was done with the Mangalore Refinery and Petrochemicals Ltd.

If only for the assurance of supply that this arrangement has provided us during the rough and tumble of the oil market, marked by soaring prices and fears of disruption of supply in the latter days of the Bush administration, actual facts go against any assumption that the deal would have been unfavourable to us. It is for the State Trading Corporation to give us facts and figures to establish if we have incurred any significant losses on the side of pricing of the products. In the absence of evidence, one cannot jump to conclusions even on this side and ride the high horses of competitive liberalism that even the citadels of capitalism have had to abandon to salvage their financial institutions and economies from impending disaster only recently.




Policy makers need to keep in mind that inter-country relations are based on broader parameters than mere commercial calculations. In a longer term perspective, one may even afford to take in a loss if any if, on other counts, the country stands to gain by maintaining friendly relationships with key economic and political partners. For example, in the days of the Cold War, Mauritius stood in defence of democracy even though we could have been swayed by temporary offers of favourable oil contracts with certain Middle Eastern oil producers, including Libya, at the risk of putting under strain our existing favourable market accesses in Europe and America. Such a departure would have jeopardised employment in several of our economic activities and it would have been foolhardy on our part to endorse the then Libyan attitude of West bashing in exchange for a few more drops of oil. We would also have been put to shame by the overtures being openly played today between the West and Libya in the aftermath of the Lockerbie settlement in a case in which an allegedly terminally sick Libyan prisoner was released by the Scottish courts on humanitarian grounds, against the background of billions of dollars dished out by Libya to the victims of the Lockerbie disaster. We need to have some authentic friends who will stand by us in thick and thin. This needs cultivating and it is a must to bring into consideration all concerned parameters collectively by the political establishment before making public pronouncements risking being misinterpreted.


As far as our commercial and political relations with India are concerned, the matter goes deeper. It will be recalled that a double tax avoidance treaty (DTA) was signed between Mauritius and India as far back as 1983. The dispositions of the DTA started being given effect to only as from the late 1980s. At first, the treaty arrangements remained more or less dormant because our international finance activity had only just started emerging at that time. With perseverance and formation of the local skill base, we drew attention of potential investors in the West to the advantages of routing their investments into India by employing the advantages conferred by Mauritius. Some people call this kind of platform by the dubious appellation of “treaty shopping”. Just to remind that this practice was prevalent in all other similar jurisdictions, including the most advanced markets of Europe and America. This was much before Mauritius saw its DTA with India as a means to incentivise the flow of capital into India. This was done at a time when the heavy hand of officialdom in India acted as a serious deterrent against inflows of capital to the country. Things are not the same today as it was then. One should not forget however what pains it took to make the investors cross the bridge.


We gave assurances about the firm legal foundation of the transactions hosted in Mauritius as concerns rights and obligations of the parties making the investor decisions before they agreed to work together with us to send capital into India. We improved our standards of practice in finance and implemented regulations with great rigour to match anything similar that Jersey, Guernsey and the Crown dependencies were subject to when ushering capital inflows into the UK and, from there, to the rest of the world making Britain one of the foremost capital providers to the world. Do not make the mistake to believe that the Caribbean, Bahamas, Panama and the British Virgin Islands have not been providing the same service to bring capital and international competitive advantage to American multinationals for decades in much the same way as Hong Kong, Singapore, Labuan and others in the Far East are conferring advantages upon Chinese corporations aiming to make global markets their backyards. Mauritius has been contributing on a far lesser scale but along the same jurisdictional principles to bring much needed capital inflows into India under its own DTA with India.


Success brings with it its own disadvantages. In our case, it would appear that some Indian taxpayers who would have bypassed domestic rules in India and transferred funds irregularly out of India to another country, say in the Middle East, the US or in Europe, only to re-route those funds back into India, would have grafted on to the normal channel of FDI transactions. This offence, which was committed in India in the first place, is referred to as “round-tripping”. It is stated that the defaulters would have “round-tripped” funds through Mauritius, thus avoiding local taxation in India apart from reaping benefits under the India-Mauritius DTA. When a fund transfer is coming to Mauritius through a bank in, say, New York or London, Mauritius or the bank receiving it in Mauritius would be hard put to identify whether those funds were the fruits of an original defalcation of taxable funds out of India. Although such funds could equally have gone through Singapore, Dubai, Bahrain or Cyprus back into India, certain lobbies in India campaigning, rightfully, against the Indian defaulters have unjustly been targeting Mauritius solely. This is unfair. Forgetting the history of the build-up undertaken by Mauritius to nurture capital inflows into India in the first place back in the 1980s, they have been asking that the India-Mauritius DTA be changed so as not to confer the benefits it has been known to be conferring to investors from Mauritius, in a sort of amalgamation of the good and the less good. The less good may be present by chance even in Mauritius unknown to us, but it will not concern the bulk of the capital funds that financial architects have been successfully routing into India for years. One needs to distinguish the wheat from the chaff.


The pressure of the lobbies against the India-Mauritius DTA is such that, had the Indian government allowed itself to be swayed by those marginal considerations, it could have scrapped the DTA. Any such unilateralism would certainly not have pleaded in favour of a law-abiding society like India and this is why the Indian Supreme Court threw out an appeal made by the lobbyists against the DTA. The Indian government has understood the stakes from a loftier angle and refused to be taken in by anything that is tantamount to a flouting of acknowledged international rules of good governance.


Mauritius needs this manner of understanding and support from friendly governments like that of India. Other than the deal with the Mangalore Oil Refinery, grander issues are at stake regarding India such as a Comprehensive Economic Cooperation and Partnership Agreement (CECPA) between the two countries which is in sufferance for quite some years now. The CECPA holds promise of much wider two-way trade and investment relationships between India and Mauritius. It would be most unwise and unbecoming on the part of Mauritius and India to lose the ship for a half penny-worth of tar (or oil or a case or two of frauds). We will be forgetting those broader contours of diplomacy if we set a blind eye on all the wider horizons that can potentially open up for both Mauritius and India, with Mauritius helping to widen the economic outreach of India into this part of the world .


As far as we are aware, Mauritius has never refused to cooperate to pin down the impunity with which certain Indian corporations would be flouting domestic Indian rules. Mauritius has no reason to do otherwise. It would serve India’s interest to work cooperatively with us to lay its hands on any of its offenders having set foot in Mauritius without throwing the baby out with the bathwater. Like Mauritius, India also needs genuine and reliable friends in times of need in the wide world, a friendship in which economic interests, or interests alone, are not the preponderant factor. It is the job of governments on both sides to foster this kind of deeper and longer-lasting ties based on mutual sympathies and not solely on commercial interests. Ties are more difficult to make than to break and it is in nobody’s interest to walk briskly on thin ice.



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