DTAA – From cooperation to revision

When PM Modi made the Indian Ocean islands of Sri Lanka, Mauritius and Seychelles the subject of one of his first overseas trips, our destination was favoured and honoured not only by the timing (coinciding as Guest of Honour at our National Day celebrations) and the optimistic mood that bathed two leaders and two countries that had just witnessed a sweeping electoral change of guards.

Both leaders had undoubtedly made landmark promises to their respective electorates but most observers here naturally expected that our common tryst with geography, history and culture, our confident strategic relationship extending far beyond friendship between India and its most loyal friend and ally in this part of the world, would be taken to new heights.

The Indian Ocean routes channel major and strategic maritime traffic (oil, commodities, marketable produce) and securing such trade had long been left to traditional superpowers, although China, not particularly keen to prolong such strategic dependence on the West, was increasingly using mega-bucks financing to help project its rising naval muscle in an area where it had little geographical or historical legitimacy. PM Modi, determined to take India on a carefully planned new geopolitical trajectory as a regional power, could not remain insensitive to its own “backwaters”. India of course has had a massive role in all sectors of our economy (funding hospitals, schools and colleges, research centres, manpower training and, lately, the cybercity and IT industry) but Modi clearly felt the urge to alter years of “benign neglect” on the security and strategic fronts.

Our PM, SAJ, our Foreign Affairs and our top-level advisors and political leadership must or should have understood that a relatively modest but nonetheless key component of the Modi strategy hinged therefore on taking Mauritius, a long-time steadfast ally and friend, bathed by common waters of the Indian Ocean and river Ganga, onto a new strategic level of economic and security partnership. And the March 2015 declarations and five signed agreements did indeed confirm that the outcome was what one could have expected from this landmark meeting of minds and hearts at a historical juncture for both nations where each party was intensely attuned to the key concerns of the other.

There were, one might say, the usual technical and cultural agreements and a key consular development announced towards the PIO passport, but the undeniable priorities were elsewhere. “I consider our security cooperation to be a cornerstone of our strategic partnership. We intend to quickly build the petroleum storage and bunkering facility in Mauritius,” Prime Minister Modi said at the signing of the pacts following talks with his Mauritian counterpart Anerood Jugnauth. The 1,300 tonne MCGS Barracuda, India’s first naval patrolling vessel offered and built specifically to help Mauritius patrol its 2.3 million sq.km of ocean waters, was duly launched. India offered help with assessment of our deep sea reserves and resources, technical expertise with the “Ocean economy” and promised an air-strip and sea-air facilities to help us with Agalega’s relative isolation.

On the economic front, the Indian PM graciously agreed that the US$ 200 million earmarked as India’s contribution to the Light Rail Project that had been shelved by the SAJ regime, be redirected to other uses, notably in our water and energy security. A US$500 million concessional line of credit was offered to Mauritius for key infrastructure projects left to our discretionary use. Undoubtedly, strategising our traditional partnership and bondings into a confident new level was high on the agenda and observers could feel that the promised developments were on a par with such expectations.

Even on the niggling matter of the Double Taxation Avoidance Agreement (DTAA), where PM Modi himself on the campaign trail in India and his Finance and Indian Revenue Authorities had been hard pressing that more could and should be done by local authorities to reduce Indian businessmen temptation to use Mauritius as a round-tripping, tax-friendly stop-over to route their investments back into India, there seemed to emerge a strong consensus that the matter could be resolved in that spirit of strategic understanding. The Indian PM expressed appreciation of past efforts undertaken to allay such fears: “I also conveyed our deep appreciation for the support and cooperation offered by Mauritius on information exchange on taxation”, and both leaders agreed to push forward their negotiations for a long pending revision of DTAA, asserting that their objective is cooperation to prevent the possible “abuse” of the convention.

At the end of this strategic visit in March 2015, there was no cloud on the horizon, there was no inkling that the cooperative spirit to limit abuse of the DTAA from the two statesmen, could in July 2015 turn into a source of considerable controversy locally, putting our banking and offshore financial sector under heavy risks, with potential contagion to other economic spheres, if we go, that is, by the IMF and Moody assessments. What turned sweet grapes so sour in those four fateful months?

Was it just a matter of amateurism and inexperience of technical and political staffers, facing vastly more astute and resilient Indian counterparts? In which case, operators and everybody else could have expected that the meeting of last resort between SAJ and Modi in India would certainly redraw the contours of a deeply unsettling MOU signed in July 2015 in New Delhi by the Bhadain and Manraj tag team. That failed to happen and events since have taken their rather ominous course. In return for complete surrender of taxing rights to Indian demands, we seem only to have secured that the US$ 500 million be converted into an outright grant, so long as used for Indian companies. That may salvage the hazy Heritage City property development scenario, but where and how did we miss the beat so dramatically?

The “when” seems relatively clear, we mucked up badly between March and July 2015, to the extent that probably no Minister of ours could salvage anything from the Joint Working Group negotiations. Were our Foreign Affairs already hopelessly sidelined and ineffectual? Were our top political brass so engrossed in local “politicaille” and wild goose chases that they missed the broader picture and, in particular, blithely overlooked the geo-strategic concerns of both countries?

The last resort SAJ mission could only hope to achieve something in India had our own top staffers done their analysis and come up with appropriate strategic answers to defuse the situation. Clearly they had not done so then and there is no evidence they have yet done any inquest or dispassionate analysis of what has gone awfully wrong in those four fateful months. They better wake up for there are not that many feet one can shoot at.

* Published in print edition on 20 May 2016

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