This unprecedented rupee-denominated LOC is a critical development for India, signifying a broader shift in its foreign assistance program, traditionally dominated by dollar-denominated loans. The LOC will be financed by the State Bank of India at concessional terms, further bolstering India’s position as a trusted partner for development projects in the Global South.
External Affairs Minister S Jaishankar made the formal offer to his Mauritian counterpart Maneesh Gobin, which has now been accepted by the Government of Mauritius, India’s Ministry of External Affairs (MEA) said on Thursday (October 17, 2024).
The water pipeline replacement project will address an urgent infrastructure need in Mauritius. As the existing water supply network in many areas of the country has aged, the replacement of approximately 100 kilometers of outdated pipelines is expected to significantly improve water access and management across the island nation. This project will not only enhance the reliability of water distribution but also contribute to public health outcomes by ensuring a more stable and safe water supply.
India’s LOC represents a tangible contribution to the daily lives of Mauritians, as it addresses a core infrastructure challenge.
“This is yet another reflection of India’s long-standing commitment to overall socio-economic development of countries in the Global South. India’s development projects continue to be driven by the aspirations and needs of its partner countries,” the MEA said.
Rupee-Denominated LOC: A Strategic Shift
Traditionally, India has extended its Lines of Credit in US dollars, but the introduction of a rupee-denominated LOC marks a strategic shift. By denominating this LOC in Indian Rupees, India is advancing its efforts to internationalise its currency, encouraging its use in international transactions, and strengthening bilateral trade flows. The repayment for this LOC will be made in rupees, effectively increasing the circulation and acceptance of the Indian currency abroad. This could have far-reaching implications for India’s trade and economic diplomacy, as it reduces dependence on foreign currencies and strengthens India’s economic sovereignty.
India’s decision to extend a rupee-denominated LOC is in line with broader global trends where emerging economies seek to reduce their reliance on the US dollar. For India, this is not only about enhancing its currency’s international profile but also about creating a robust financial system that supports long-term trade and investment partnerships with countries like Mauritius.
Unique India-Mauritius Relationship
India and Mauritius share a unique relationship, underpinned by historical, cultural, and demographic ties. With over 70% of Mauritius’ 1.2 million population being of Indian origin, the two nations enjoy a deep connection that extends beyond formal diplomatic relations.
The LOC comes at a time when both countries are celebrating the 75th anniversary of the establishment of diplomatic ties. It also aligns with the broader framework of India’s “Act East” policy, under which India has sought to deepen its engagement with countries across Asia and the Indian Ocean region.
IDEAS and India’s Role in the Global South
The IDEAS initiative, under which this LOC has been extended, is India’s flagship development assistance programme. It aims to support infrastructure, capacity-building, and social welfare projects across Asia, Africa, and the Caribbean. By providing concessional loans, India enables recipient nations to tackle pressing developmental challenges while avoiding crippling debt burdens.
Boosting Indian Industry
The structure of the LOC under IDEAS often mandates that a portion of the goods and services procured for projects must come from Indian companies. This creates a win-win situation, where Indian firms gain access to new markets while partner countries benefit from high-quality products and services. In this case, Indian companies specializing in water management and infrastructure stand to gain from the project in Mauritius, further strengthening the economic ties between the two nations.
India’s first-ever rupee-denominated Line of Credit to Mauritius underlines a significant evolution in India’s development assistance strategy. The financing of the water pipeline project not only addresses a critical infrastructure need in Mauritius but also serves as a broader strategic move by India to boost the international use of its currency, deepen trade ties, and enhance its geopolitical influence in the Indian Ocean region.
