New Delhi: India is set to restart suspended negotiations for a free trade agreement (FTA) with Mauritius starting October after it renegotiated the two decade-old double-taxation avoidance agreement (DTAA) last year that gives India the right to impose capital gains tax on investments routed via Mauritius, reports Live Mint.
A commerce ministry official speaking on condition of anonymity said both sides have exchanged a request list for goods and services. “Tariff lists for goods have also been exchanged. Formal negotiation will begin starting October,” he said.
Asked why India is keen to sign an FTA with a tiny island nation like Mauritius, the official said: “We have cultural and historical links with Mauritius as a majority residents are originally from India. We should not always look at what we will gain from such FTAs. It is a good gesture towards Mauritius. There was also a commitment that after DTAA is signed, India will look at the proposed FTA afresh,” the official said.
Talks for signing a Comprehensive Economic Cooperation and Partnership Agreement (CECPA) began in 2015 but was suspended to put pressure on Mauritius to renegotiate DTAA, which was often used by foreign investors to avoid paying capital gains tax in India.
India renegotiated DTAA last year which gives it the right to impose capital gains tax on transfer of shares of Indian resident firms channelled through Mauritius. In the older version of the tax treaty, only Mauritius had the right to tax capital gains by firms investing in India from there. However, tax on capital gains was nearly zero in Mauritius, making it an attractive destination for investors looking to invest in India.
India’s exports to Mauritius grew 3% to $883 million in 2016-17, but declined from $1.9 billion in 2014-15. Imports from Mauritius are negligible at $18.4 million in 2016-17 after contracting 10% from its previous year. However, Mauritius is the single largest source of foreign direct investment (FDI) to India. FDI inflows from Mauritius to India stood at $15.7 billion in 2016-17, constituting 34% of total FDI inflows to India.
The study for CECPA commissioned by the government of Mauritius with EXIM Bank of India in 2005 identified several areas of investment by the Indian corporate sector. “CECPA would lay down the road map as well as modalities for encouraging Indian investments in Mauritius and joint India-Mauritius investments in the region. Mauritius highlighted that, in view of its core competencies, strategic location and trade pacts at multilateral and regional levels, it could serve as a hub for Indian investors not only for Mauritius market but also to access other markets through its various trade agreements,” a government statement said after the first round of negotiations in 2015.
Prime Minister Narendra Modi, during his visit to Mauritius in 2015, said he considers Mauritius as a leader in the Indian Ocean community and as a bridge to Africa.
Biswajit Dhar, a professor of economics at the Jawaharlal Nehru University, said apart from not getting any real economic benefit, by spreading its scarce negotiating resources too thin, India may lose out at negotiations when it really matters. “There needs to be some strategic thinking before starting FTA negotiations with any country. There cannot be any ad hocism regarding such trade negotiations,” he added.