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Mauritius and Indian Wealth Creation


The common people are wondering as to why a Joint Parliamentary Committee is enquiring into the Mauritius connection for dubious transactions and windfall harvesting of profits.

By Shakti Kant

On April 3 this month, senior journalist Paranjoy Guha Thakurta wrote a piece for the Outlook magazine on the linkages between Mauritius and the reprehensible activities in the oldest stock exchange of Asia and India’s largest till recently – the Mumbai (Bombay) Stock Exchange. As the piece raises many important issues relating to how wealth is ‘created’, ‘owned/disowned’, change hands and made mobile internally within the country and externally across the globe avoiding taxes, the issues are being explained in a plain language for general appreciation.

Generally, it is very difficult for an individual to start a factory, a big business network, an airlines company, a consumer store or something of magnificent size with his/her own resources. Further even if one takes loans from a bank/banks, there is a limit to what one can borrow and the loans taken may as well be not enough to start the business at the scale desired. This is where the role of stock exchanges arises.

Here the stock implies the worth of the property of the firm being started and a certain level of activity in place. Since the personal resources are not enough, the individual – generally called entrepreneur – may think of sharing ownership of his/her activities with others and thus issue a certain paper of promises with assigned currency values. These are what is called Shares. Since the owner cannot visit all the intended buyers of shares, the trading is done through the stock exchanges. If there is rising activity in the firm, the value of the share rises with the rising marketing transactions and accompanying rise in profits. If the activities decline and there is less demand for the products of the firm, the market (stock exchange) value of the share declines. When the value rises, people do try to purchase the shares, but the opposite of selling off the shares is the case when value declines.

It is exactly in this context that the common people are wondering as to why a Joint Parliamentary Committee is enquiring into the Mauritius connection for dubious transactions and windfall harvesting of profits. It is not that all the creation of new establishments and consequent entry into the stock exchange for mobilisation of resources are endeavours of sincere people only; there are crooks too. Going back a little, some in the authorities establishing regulations for the conduct of business may as well be having ulterior motives for themselves such that loopholes for escaping the control mechanism may be left untouched. This is exactly what has happened in the present case in the transactions between India and Mauritius.

India and Mauritius have been enjoying good political relationships, and in 1982 signed a treaty for avoidance of double taxation with the declared objective of boosting investment and growth in the two countries. Being a poor developing country, Mauritius is not known for efficiency of tax administration. This is where the Indian Black Money finds a convenient playing ground for temporary stay and return safely without drawing attention from the tax administrators. Under the agreement between the two countries and the policy of encouraging foreign institutional investors, fictitious names get registered for doing business in the Indian stock exchanges. In this endeavour, Mauritius has been a very convenient space for the Indian Black Money to play through and come back into India with white shirts. There are possibilities of existence of staff in the stock exchanges as well who are facilitating the game with convenience fees collected at the personal levels. These are the issues being investigated by the JPC.

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