A tiny speck of island on the Indian Ocean, Mauritius, for an average Indian, is largely a beach destination that beckons thousands of honeymooners to its coral reefs and picture-perfect underwater world every year. But for a little over a decade, it has also become a key component that oils the Indian capital market as a hub for routing financial investments into India.

Be it a multinational firm investing in its Indian subsidiary, a private equity firm looking to take advantage of tax loopholes or even an Indian promoter routing a part of his/her own holdings in a group company through a Mauritius arm, the island nation is easily the favourite tax haven for investors into India.

However, certain sections of the Indian government have raised concerns of ‘round tripping’ of funds which, in effect, leads to loss for the Indian exchequer. There have been talks of trying to plug the loopholes for quite some time. And there are rumours that this time around, it might just happen. Even as fresh reports suggest that there has been no decision regarding the same, for a stock market that is on the verge of sneezing at any whiff of trouble, it was enough to shave down almost 2 per cent value on Monday.

VCCircle snorkelled through some numbers to find out just how important Mauritius is to India


Simply put, Mauritius has been the single largest source of FDI into the country in the first 10 years of the new millennium. As much as $55 billion worth of money has been invested in India after being routed through Mauritius. This is 42 per cent of the total FDI in the country in the past decade. For starters, bulk of this money originated not from the island nation itself whose GDP is 150th the size of India.


One month is too short a time period to judge multibillion fund movement, but if one can consider it a lead indicator of what’s to come, Mauritius has already lost some edge. On the one hand, there has been an increase in proportion of FDI pouring into India from France and Japan and the biggest loser is clearly Mauritius. For the first month of the new financial year, Singapore trumped Mauritius to become the single largest source of foreign money coming into India. This may yet be a temporary phenomenon, but the long-term trend is pointing towards declining importance of Mauritius to FDI in India.


The quantum of money flowing via Mauritius into India has dipped over the last two years. But it’s not just a Mauritius thing. Total FDI into India has dipped at the same time as the global financial crisis followed and a severe economic slowdown took its toll.

Year 2008-09 was, by far, the single biggest year ever for foreign money flowing into India with as much as $27.3 billion pouring in the country. Just to gauge the significance of the year: The total FDI between August, 1991, and March, 2003, was $26.9 billion (although this has partly to do with the change in methodology for calculating FDI in line with international standards sometime back).


Inflows through Mauritius remained marginally short of the billion-dollar mark for April, 2011, but jumped significantly over the same period last year. If anything, this is also reflective of the broader trend.

If April is an indication, the tide could well be turning for foreign investment into India. The total FDI jumped 41 per cent over the same month last year, after two straight years of decline during the month. The total FDI for the month was still far below the number touched in April, 2008, when a record $3.75 billion worth of FDI flowed into the country, but with total FDI crossing the $3 billion mark in the first month of the new fiscal, it has set the right tone for scaling past the previous peak for FY12.

The spectre of inflation and policy paralysis in political governance has set some investors reviewing their investments. But as multinationals scramble to get a foothold in the second fastest-growing major economy in the world, at worst, it may just be a temporary blip. The question is whether Mauritius will remain as attractive to investors as it is to young couples as a short-haul destination within a long journey!

Data Source: DIPP, Ministry Of Commerce & Industry

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