Our Special friendship with India: beyond the mirch-masala of Bollywood?

India has always been our special friend. In Foreign Minister Dr. Shaheed’s words, “our primary strategic interests lie with India. And there is nothing that can change this plain fact”. India, despite the current economic chill, isn’t too far away from making its behemoth economy a global economic powerhouse.

We have with India strong military cooperation; bilateral trade, albeit, heavily skewed in favour of India; assistance in human resource development; and of course there is India’s unwavering relief and rescue, come the tidal surges of the south-west monsoon.

With a retired Lieutenant General as our government’s envoy in India, the relationship that was fostered under Gayoom, particularly in the aftermath of ‘Operation Cactus’ was largely centered around ‘defense and military cooperation’ which left us with, among other things, white elephants like INS Tillanchang. I, of course, don’t downplay the significance of IGMH, MITE, the recent USD 100 million budget support loan and the innumerable times India had lent a helping hand to us.

While we were deeply engrossed in Bollywood’s copious outflow of never-ending sultry mirch-masalas and India’s military toys, another small country Mauritius, located off the coast of Africa in the Indian Ocean signed a double taxation avoidance treaty with our mighty neighbour in 1983. Under the treaty no resident of Mauritius were to be taxed in India on capital gains made on the sale of shares of Indian companies by investors resident in Mauritius. The treaty did not have any affect until 1992 when India opened the country for foreign financial investors. During the same year Mauritius tactically allowed foreigners to register companies in the country for overseas investments. Foreign investors eager to reap the benefits of the Indian economy’s boom quickly routed their investments through Mauritius as this exempted them from capital gains tax completely. According some estimates nearly 40% of the $45-50 billion FDI inflows into India between 1991-2006 came through the tiny African state of Mauritius.

Luxembourg and Liechtenstein, two microstates in the heart of Europe, perhaps offer some interesting clues on the type of synergies that we could develop with India. Luxembourg and Liechtenstein with populations of around half a million and 40 thousand respectively, are among the richest nations in the world – thanks to their highly successful banking and financial sectors.

Nasheed’s government appears to be working towards steering the course of our special relationship with India to gear it more towards commercial ties. With key figures within MDP’s top brass who are known for their India-centric policies at the steering wheel, the day we could become to our behemoth neighbour what Liechtenstein is to Europe is perhaps not far way.