The foreign money being routed through the island nation and China's growing presence here have put Mauritius on India's radar.

Navin Ramgoolam of Mauritius, who is leading a three-party coalition in the national parliamentary election that is scheduled for May 5, is determined to win a second consecutive term as this island-nation's Prime Minister.

Anecdotal observation suggests that he is likely to win and that, in his next term, the 1.3 million people of Mauritius expect him to lead a government that will heal the growing rifts between the country's majority Hindus — who are divided along their own internecine provincial lines — Christians, Muslims, Creoles, and Europeans of French descent, known here as Francos. The 63-year-old Prime Minister — who is a trained physician, a lawyer, and the son of the country's venerated founding father, the late Prime Minister Seewoosagur Ramgoolam — has created a salutary slogan for the campaign: “Unity, Equality, Modernity”.

That slogan should be viewed in the context of the communal rifts that underscore social and political complexities that belie the bucolic environment of this land of vast sugarcane plantations, dainty streams, flawless beaches, and craggy mountains. But while healing the ethnic wounds may be a prime election issue for Mr. Ramgoolam's campaign, there is a huge issue that has not quite made its appearance on the hustings.

It concerns India, and it involves China.

Biggest FDI provider

India, of course, is widely regarded as the mother country of Mauritius, since a lot of Hindus, and many Muslims, too, can trace their ancestry to indentured labourers who were brought to this Indian Ocean paradise by its former British rulers.

Mauritius, in fact, has become the biggest provider of foreign direct investment (FDI) for India — more than $11 billion annually, or more than half of the overall amount that typically comes into India from foreign sources.

Of the total $81 billion foreign direct investment that has come into India since April 2000, $35.18 billion was routed through Mauritius, according to figures available with India's Department of Industrial Policy and Promotion.

Though India has a “Double Taxation Avoidance Agreement” with some 65 countries such as the United States, Britain, Japan, France, and Germany, Mauritius is the most preferred route for FDI inflows, according to a recent report in the Delhi-based newspaper, Mint. Indeed, the money routed to India from here is nearly quadruple that of the next biggest provider of FDI, the United States, whose FDI was around $8 billion since 2000; followed by Britain, with $7.72 billion, and Germany, at $2.14 billion.

It is not that the investors who route their money through this country to India are necessarily based in Mauritius. But because of a bilateral agreement between Mauritius and India that does not penalise FDI with taxes, many investors — including non-resident Indians who form the 22-million-strong global Indian Diaspora — prefer to use the facilities offered by Mauritius.

This situation has become a bone of contention between India and Mauritius, which imposes corporate taxes of less than three per cent and therefore is a tax-haven of preference for many multinational companies. When Home Minister P. Chidambaram was the Finance Minister, he was determined to alter the terms of the bilateral agreement so that foreign investors would pay around 20 per cent in taxes.

It took personal discussions between Mr. Ramgoolam and Prime Minister Manmohan Singh to essentially put the issue on hold. But it rankles many Mauritians that in times gone by when India desperately sought FDI, it offered all sorts of incentives — such as no-taxes — for those who channelled FDI into India. But now that India's foreign-exchange reserves are touching $300 billion, exports are increasing, and FDI — as well as foreign money for domestic equities — is pouring in, India seems bent on imposing taxes.

Dubious sources

The subtext to this issue is not just the FDI routing; rather, it is the source of the cash. The BJP and Communist Party of India (Marxist) have claimed that $1.5 trillion has been stashed outside the country by Indians, and that this black money is being conveniently channelled back into India for legitimate use as FDI through a legitimate path. Of course, not much has been offered by way of proof — not an uncommon occurrence in the political cauldron of India.

The other large issue that looms over the Mauritius election but has not found expression in the campaign rhetoric is the growing presence of China here, and China's incipient economic and political ambitions in Africa. These ambitions would pit the world's biggest country against its largest democracy, India. Mauritius's strategic location makes it a geopolitical prize, which would explain why officials at India's Ministry of External Affairs are more and more concerned about the fact that China is building large industrial re-export complexes here and in a dozen other African countries.

But that will be a topic for another column.

(Pranay Gupte is a veteran international journalist and author. His next book is on India and the Middle East.)

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