Saturday 02 Jul 2022 | 10:32 | SYDNEY
Saturday 02 Jul 2022 | 10:32 | SYDNEY

New Delhi rising star in the Indian Ocean

12 July 2012 16:29

David Brewster is a Visiting Fellow at the Strategic & Defence Studies Centre, ANU.

Located about 900km east of Madagascar, Mauritius is the Little India of the southwest Indian Ocean.

Some 70% of the population is of Indian descent, and since gaining independence from Britain, the Indian community has clung tenaciously to the idea of 'mother India'. This has led to an unusually close relationship between the two countries. Former Mauritian Prime Minister Paul Berenger (who is of French descent) calls it 'umbilical'.

If anything, the relationship is likely to become closer in the next few years as India focuses on its strategic role in the southwest Indian Ocean. India has given particular emphasis to building closer economic, political and security relations with the 'Four Ms': Mauritius, Maldives, Madagascar and Mozambique. India is working hard to develop its security role in all four countries.

India has long had a special role in the security of Mauritius. It trains and equips the Mauritian National Coast Guard and Police Helicopter Squadron (effectively the Mauritian navy and air force). The Coast Guard is commanded by an Indian naval officer and for decades the post of Mauritian National Security Advisor has been occupied by an Indian intelligence officer. The Indian Navy patrols the Mauritian EEZ. 

The economic relationship is just as close. India is Mauritius' major trading partner. The level of bilateral trade between them doubled between 2010 and 2011. A Preferential Trade Agreement has been under negotiation which, if finalised, could give Mauritius' struggling textiles industry access to the huge Indian market, a major economic boost for the island.

Mauritius is also the primary gateway for international investment into India, largely due to a highly favourable double tax treaty. In the decade to January 2010, Mauritius was the source of an amazing 43% of global foreign direct investment in India. This does not reflect investment by Mauritians. Rather, US and European companies use the so-called 'Mauritian route' to make tax-free investments. On the back of the tax treaty, Mauritius has developed a highly profitable offshore financial services industry which is an important source of income and employment. 

However, according to New Delhi, the tax treaty is being used for money laundering. Wealthy Indians 'round trip' money through Mauritius to avoid paying tax in India or disclosing the source of their money. New Delhi has recently adopted anti-tax-avoidance rules that would apply to Mauritian companies. It is also pressuring Port Louis to make changes to the tax treaty, including giving Indian tax authorities access to account information.

The tax treaty has become a point of contention in an otherwise cozy relationship. The Mauritian Government is concerned that changes to the treaty could do major damage to Mauritius' role as an offshore banking centre for India. It could also significantly reduce Mauritius' competitive advantage as an investment conduit compared with its major rival, Singapore.

Another subject of discussion between New Delhi and Port Louis over the last few years has been India's proposals to be granted use of the remote Agalega Islands, located in a highly strategic position around 1000km north of the main island of Mauritius. India would like to use the airstrip on North Agalega to service Indian manned and unmanned reconnaissance aircraft. India is trying to expand its naval and air presence in the western Indian Ocean and access to North Agalega would significantly improve India's air surveillance capabilities throughout the region. 

While the Mauritians don't have any great objection in principle to Indian use of the airstrip on North Agalega – particularly to conduct anti-piracy operations — they do wonder where it might lead. India is seen as 'family' in Mauritius, but any Indian military presence on the Agalegas would also bring back some uncomfortable memories for Mauritians, and particularly for Mauritian Prime Minister, Navan Ramgoolam. 

In the mid-1960s the British persuaded his father, Sir Seewoosagur Ramgoolam, to agree to the separation of the Chagos Islands from Mauritian administration as a condition of granting independence to Mauritius. The British then evicted several hundred plantation workers and leased the island of Diego Garcia to the US for use as a naval and air base. Mauritius' claim to sovereignty over the Chagos (as well as their huge EEZ) and support for the claims of the Chagos Islanders has since become a patriotic touchstone.  

Navan Ramgoolam's Government will no doubt work to make clear that Mauritius will retain sovereignty over the Agalegas in any deal with India. The Government will also want to ensure that the 300 Creole Mauritians who live in the Agalegas are seen to benefit from any arrangement.

Still, despite these sensitivities over sovereignty, a confidential US diplomatic report in 2006 concluded that 'the Mauritian public seems to accept that India can have its way as long as the islands remain Mauritian. This is indicative of Mauritius' willing subordination to India'. The report concluded that the 'new bottom line is that if India wants something from Mauritius short of territory – they are likely to get it.'

Things may now be moving on this front. A senior Mauritian Government minister recently confirmed to me that there is a perceived connection between India's requests on the Agalegas and the tax treaty issue. Last week, according to a Times of India report, the Mauritian Foreign Minister, Arvin Boolell, who is visiting New Delhi, offered India use of the Agalega islands in return for retention of the tax treaty.

Boolell was quoted as commenting that India could use North and South Agalega Islands for tourism, marine studies, or for 'building a strategic presence in the Indian Ocean.' According to Boolell, there was 'no problem on the issue.' Boolell later 'clarified' that there was no connection between the Agalegas and the tax treaty. Nevertheless, India has now agreed to fast-track finalisation of the trade agreement. There are also expectations that India's Finance Ministry can be persuaded to back off some of its tougher positions on the tax treaty.

Deals on the tax treaty, the trade agreement and perhaps on the Agalegas will likely take time to play out. There are many details to be worked through on the tax treaty, including grandfathering existing investments from investigation by Indian tax authorities and to what extent India will be given access to information on investors. Mauritius will still need to work hard to get access to India's textiles market, where the big Indian manufacturers have been quite successful in keeping out foreign competition. Any Indian use of North Agalega is also likely to occur only gradually, perhaps beginning with Indian investment in the airstrip and other infrastructure on the islands.  

As India seeks to expand its strategic reach in the Indian Ocean it is not impossible that we will see similar arrangements elsewhere in the region.

Photo by Flickr user ashok666.