The tiny island of Mauritius became the top source of investment into India, with $13.4 billion or 36 percent of the total in 2017-18, according to reports.
According to Reserve Bank of India’s annual report, Mauritius was followed by Singapore with $9.3 billion. The Netherlands and the U.S. were third and fourth with $2.7 billion and $2 billion respectively.
Further, the RBI said that India has witnessed a steady growth in FDI from 2013 onwards. Mauritius was a top investor in India in 2014-15 and 2016-2017 where the total investment from the African island was $5,878 million and $13,383 million respectively.
A Financial Times report says that Mauritius is also one of Africa’s most advanced economy. According to the report, the reason behind Mauritius becoming one of Africa’s top economy is its foreign investment policies. FDI has been the key instrument in driving the economy to the top which is “labor-oriented, particularly in textiles and tourism,” James Zhan, UN Conference for Trade and Development (UNCTAD) director for investment and enterprise was quoted as saying by the British newspaper.
Apart from India, France, South Africa, and the U.S. were major investors in Mauritius turning the country’s property, IT, and tourism sectors into the key industries for a steady and booming growth.
Mauritius has transformed into a “financial hub, high-grade tourism, and services economy,” FT quoted Zhan as saying.
While FDI has become a key source, a practice known as round-tripping — where the capital is routed through a low tax jurisdiction before it can return into the economy of origin as FDI — has remained an issue.
According to John Christensen, director of UK-based think-tank Tax Justice Network, round-tripping has created a genuine problem to distinguish the original FDI and the round-tripping capital.
“It has become extremely difficult to distinguish between round-tripped capital and genuine FDI globally,” the newspaper quoted him as saying.
For years Mauritius has been the biggest source of direct investment into India, according to RBI data. While the fact is India is the world’s sixth largest economy, Mauritius is 124th in U.S. dollar terms.
The imbalance clearly indicates, “It was round-tripping and going elsewhere using Mauritius as a springboard,” Zhan said implying that the investment was not always directed toward Mauritius.
To solve this problem, India and Mauritius revisited their double-taxation treaty in 2016 and the changes are being noted in the current year and next, the FT report stated.
Port Louis Stock Exchange Chief executive Sunil Benimadhu said, “We don’t want to be used as a base for [people] to bypass their taxation duties to their home countries.”