Rethinking Mauritius-India Economic Relations

While India’s technical assistance and aid have made a significant impact on socio-economic development in Mauritius, and are welcome, trade and investment between Mauritius and India are skewed in favour of the latter. Whether the CECPA could help achieve more balanced trade and investment relations between the two countries remains to be seen

By Vinaye Dey Ancharaz

The official visit of the Prime Minister of India, Shri Narendra Modi, to mark the 57th Independence Day celebrations of the Republic of Mauritius is good opportunity to take a critical look at the bonds between the two countries with a view to strengthening them. These ties are rooted deep in history and culture and span many sectors. This article focuses on the economic relations between Mauritius and India.

Cooperation between Mauritius and India in the economic domain has been formally implemented through a panoply of agreements, including Indo-Mauritian Joint Commissions and, most recently, the Comprehensive Economic Cooperation and Partnership Agreement (CECPA), which came into force on 1 April 2021.

“Cultural and educational exchanges have been a key aspect of such cooperation, with the setting up of the Mahatma Gandhi Institute back in 1976, the Indira Gandhi Centre for Indian Culture in 1987, and more recently, the Rajiv Gandhi Science Centre and the World Hindi Secretariat. India’s assistance in the health sector is also gratefully acknowledged. The Jawaharlal Nehru hospital, the Subramania Bharati Eye hospital and the new ENT hospital were all financed through generous grants from the Government of India…”

In theory, the CECPA represents a major opportunity for Mauritian exporters and investors to penetrate the large yet elusive Indian market. In practice, Mauritius’ exports to India are negligible, and survey findings suggest that exporters have a fear of venturing into large markets since they lack the capacity to meet demand on a sufficient scale. If this does not change, the CECPA would do little to redress the trade imbalance between the two countries.

On the other hand, one doubts if the accord was driven by purely economic imperatives. Political-economy considerations are likely to have trumped any economic rationale, especially for a small country like Mauritius, which coincidentally also signed a free trade agreement with China (MCFTA) that came into effect on 1 January 2021. These events can hardly be dismissed as mere coincidence. Mauritius, it seems, has become the unfortunate battlefield in which the war for economic supremacy between India and China is being fought.

India’s choice of Mauritius as the first African country with which to sign a trade pact is hardly surprising. Historical ties aside, India may be eyeing Mauritius as gateway into Africa, an idea that Mauritius has also tried to sell to the Chinese – without much success up till now, it seems, given that the much-touted Jin Fei project is left in ruins. Will the CECPA suffer a similar fate?

This article is in two parts. Part I presents a brief analysis of Indo-Mauritian economic relations, focusing on trade, investment and aid flows between the two countries. Part II critically assesses the potential of the CECPA to enhance such relations in favour of Mauritius, thereby leveraging their power to boost sustainable development on the island. 

India in Mauritius: a brief historical background and recent developments

India’s presence in Mauritius is ubiquitous – the result of sustained cooperation between the two countries ever since newly-independent India established diplomatic relations with Mauritius, still under British rule, in 1948. Cultural and educational exchanges have been a key aspect of such cooperation, with the setting up of the Mahatma Gandhi Institute back in 1976, the Indira Gandhi Centre for Indian Culture in 1987, and more recently, the Rajiv Gandhi Science Centre and the World Hindi Secretariat. India’s assistance in the health sector is also gratefully acknowledged. The Jawaharlal Nehru hospital, the Subramania Bharati Eye hospital and the new ENT hospital were all financed through generous grants from the Government of India.

Moreover, India has a significant commercial presence on the island in the banking industry (e.g. Bank of Baroda, State Bank of India), in financial services (LIC, New India Assurance), telecommunications (Mahanagar Telephone Ltd.), education (Amity), retail (Indian Oil) as well as in the agriculture and manufacturing sectors.

Technical assistance

Less visible are technical assistance and capacity-building initiatives. Mauritius is a major beneficiary of the Indian Technical and Economic Cooperation (ITEC) programme, which has provided training to thousands of public officers, including the police, coast guard and defence forces. Thousands of Mauritians have also studied in Indian universities under scholarships offered by the Government of India, or at their own cost. Notably, Indian-trained Mauritian doctors have made significant contributions in the health sector, and Indian doctors are now a common feature in both public and private health care institutions. More generally, Mauritius has benefited from Indian expertise in diverse areas, including maritime security, agriculture, fisheries management, science and technology, and education and health.

Aid

India’s foreign aid policy has been rather subtle. For instance, it was not until 2008 at the India-Africa Forum Summit that India pledged to scale up its aid and lending to Africa, and this, largely in response to China’s inroads into the continent, as signalled by the 2006 Beijing Declaration. However, Mauritius has been an outlier in India’s aid policy. Both because of the cultural affinity between India and Mauritius and their mutual economic interests, negotiations for loans and grants from India have taken place regularly (at 2- to 3-year intervals) and in a structured manner since the first Indo-Mauritian Joint Commission held in 1979.

India has financed projects such as airport development, the construction of the cybercity in 2001, various schools and training centres, hospitals, sewerage projects, a science centre and an international conference centre, to name but a few. Before 2015, Indian aid was mostly in the form of grants; project costs were low; and India generally shied away from actually implementing the projects. This ensured greater local ownership of the projects, higher value added and a larger multiplier effect on the domestic economy.

All this changed after 2015. In May 2016, India offered a line of credit of $353 million to finance a series of projects, including notably the metro, which would attract further financing from India over the years, the last installment being a line of credit of $300 million and a grant of $25 million in August 2022 for the third phase of the metro project. So far, the project has reportedly entailed investments amounting to Rs 20 billion. However, only a thorough audit would pin down the exact cost of the metro project and shed light on its feasibility.

The implementation of the light rail project marked a paradigm shift in India’s infrastructure financing in Mauritius. Never before had a project been so big in scale, nor had India implemented any project it financed. Infrastructure works for the metro project were undertaken by Larsen and Toubro, an Indian firm, using mostly Indian workers and imported materials. This significantly reduced the multiplier effect of such a massive public investment project on the Mauritian economy. One can only hope that, in future projects of similar scale, the government of Mauritius negotiates the terms of engagement such that their economic impacts are maximized.

Investment

The Double Tax Avoidance Treaty (DTAT) that Mauritius signed with India back in 1983 would turn out to be a major factor in Indo-Mauritian investment relations at the dawn of the new millennium. With Mauritius emerging as an international financial centre in the 2000s, Indian investors began using the country as a platform to set up and register companies, which would then invest out of Mauritius into India, thus qualifying for tax holidays available to foreign investors. This led to a sharp increase in Mauritian FDI into India.

For several years, Mauritius was the leading investor in India, ahead of powerhouses like the US and Singapore. Between 2000 and 2023, cumulative outward FDI from Mauritius into India reached $175 billion, representing one-quarter of India’s total FDI inflows over this period. However, FDI flows have dropped from $15.7 billion in 2016-17 to Rs 6.1 billion in 2022-23. This sharp decline is due to a significant amendment to the DTAT in 2016 aimed at curbing the practice of round-tripping, which cost the Indian government billions in foregone tax revenues. The amendment was a major blow to the global business sector, which had come to thrive on Indian business.

Conversely, Indian FDI into Mauritius is rather small. Between January 2019 and September 2024, India has invested a total of Rs 4.3 billion in Mauritius, just 3.1% of the country’s total FDI inflows over this period. Indian investments in Mauritius have generally streamed into sectors of key importance to the economy, such as textile and clothing, ICT, hotels, health care, and financial services.

Indian firms have contributed both to consolidating Mauritius’ advantage in traditional sectors such as clothing and tourism, and in gearing the economy towards new avenues like ICT. FDI from India in spinning and weaving activities have helped Mauritius bridge its fabric gap and build a vertically integrated clothing industry capable of meeting stringent rules of origin for exports to the EU and the US.

India’s recent investments in higher education and health care are in line with Mauritius’ vision to develop the island into hubs of all sorts, including knowledge and medical hubs. Finally, India played an instrumental role in the setting up of the BPO sector, which today is in need of another big push. It is expected that, if India could leverage Mauritius as a gateway into Africa, Indian FDI flows to Mauritius could increase substantially. However, there is a risk that such investment is biased towards the real estate sector, which currently accounts for over two-thirds of all FDI into Mauritius.

Trade

Trade between Mauritius and India is lopsided and totally in India’s favour. Merchandise imports from India increased sharply in the early 2000s to a peak of nearly Rs 40 billion in 2013 (see Figure 1). Imports have, since, hovered around Rs 30 billion, on average, recovering after a massive 42% decline in the pandemic year of 2020. Yet India remains the third largest supplier to the Mauritian market, after China and the UAE. Key imports from India include mineral fuels (accounting for 16% of total imports from India), pharmaceutical products (10%), motor vehicles (10%), cotton (9%), and cereals, notably rice (6%). Petroleum products were, by far, the single biggest import item from India between 2006 and mid-2019 when the supply contract with India’s Mangalore Refinery and Petrochemicals Limited was terminated. While the share of oil in India’s exports to Mauritius has consequently shrunk, mineral fuels still dominate Mauritius’ imports from India.

Conversely, Mauritius’ merchandise exports to India have been flat and negligible since 2000 but have increased slightly to around Rs 2 billion in recent years. This increase in exports is hardly any cause for celebration, though. Scrap metals (iron, aluminum and copper) are Mauritius’ main exports to India, accounting for just over half of total exports to India in 2024. Mauritius also exports some medical and surgical devices, vanilla and clothing to India, but these exports are tiny in value and are eclipsed by scrap metals and paper.

The gap between exports and imports remains glaring by any standard. At its peak in 2013, Mauritius imported 74 times more from India than it exported to the subcontinent. In 2024, this ratio was 16 to 1, still worryingly high. India alone accounts for 14% of Mauritius’ overall trade deficit.

India’s dominance also extends to services trade, an area where Mauritius has historically registered a surplus. Yet, with respect to India, Mauritius shows a deficit, with a tendency to widen in recent years as Mauritius’ exports of accounting and financial services to India have declined.

Preliminary conclusion

The analysis so far suggests that, while India’s technical assistance and aid have made a significant impact on socio-economic development in Mauritius, and are welcome, trade and investment between Mauritius and India are skewed in favour of the latter. Whether the CECPA could help achieve more balanced trade and investment relations between the two countries remains to be seen. Part II of the article will delve into this question, and offer some insights based on preliminary analysis of the Agreement.

References

– Vinaye Dey Ancharaz, “China’s Challenge to India’s Economic Hegemony over Mauritius: A Tale of Two Giants and a Pigmy”, Journal of African Development, Vol. 13 (2), Spring 2011

– Vinaye Dey Ancharaz and Rajiv Nathoo, “Mauritius’ Free Trade Agreement with China: Lessons and Implications for Africa”, Policy Insights 127, May 2022, South Africa Institute of International Affairs

 

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Mauritius Times ePaper Friday 14 March 2025

Tags:CECPA Agreement, CECPA Potential, China Rivalry, Double Tax Avoidance Treaty’, FDI Decline, Indian Aid, Indian Dominance In Trade, Investment Trends, Mauritius Times, Mauritius-India Economic Ties, Modi Visit, Political Economy, Service Trade Deficit, Technical Assistance, Trade Imbalance, Vinaye Dey Ancharaz