India, explained.
Maldives President Mohamed Muizzu and Indian Prime Minister Narendra Modi met at Hyderabad House in New Delhi on 7 October 2024 (Raj K Raj/Hindustan Times via Getty Images)
The bilateral reset came as a relief amidst a slew of worrisome setbacks for New Delhi in the neighbourhood.
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Maldives ditches “India-Out” for an economic lifelineMaldives ditches “India-Out” for an economic lifeline
The state visit to India last month by Maldives President Mohamed Muizzu involved a visible effort to repair the diplomatic relationship. New Delhi more than welcomed the rapprochement and signed a range of agreements with Male. India-Maldives ties were bumped up to “Comprehensive Economic and Maritime Security Partnership,” with an ambitious vision document attached.
Muizzu’s visit starkly contrasted the sentiment that accompanied his rise to power. He took took office last year following a politically charged “India-Out” election campaign. Immediately upon victory, he removed from the country the minimal Indian military presence (in place primarily to assist Male operate Indian defence platforms) and “reviewed” and junked important strategic agreements with India. At the same time, Male signed a defence cooperation agreement with Beijing.
So what explains Muizzu’s “Diplomatic U-turn? ” James Carville, the renowned US political campaign strategist, would have understood well. “It's the economy, stupid.”
With a GDP-to-debt ratio of 110%, the Maldives is yet to recover from the economic disruption caused by Covid-19. The bulk of its external debt is owed to China ($1.37 billion out of $3.4 billion), which has been widely blamed (again) for “debt-trap diplomacy”.
In September, both Moody’s and Fitch downgraded the Maldives’ credit rating and stated that its foreign exchange reserves were significantly below its external debt service requirements. In fact, at $440 million (by the end of August), the Maldives barely had enough to cover six weeks’ worth of crucial imports. Investors feared that the archipelago would become the first country in the world to ever default on an Islamic sukuk – a bond which follows Islamic strictures against traditional interest payments.
Just days before a sukuk coupon was due, New Delhi moved to bail Male out, and the State Bank of India lent $50 million in emergency assistance upon request.
New Delhi can now push for a comprehensive reinstatement and expansion of maritime security ties with Male.
In turn, Male softened its anti-India rhetoric substantially. Ahead of the visit to India last month, Muizzu spoke to the BBC, ruled out International Monetary Fund support, and stated, “India is fully cognizant of our fiscal situation, and as one of our biggest development partners, will always be ready to ease our burden” – a far cry from the earlier (tacit) characterisation of India as a “bully.” Moreover, six days ahead of the visit, the two Deputy Ministers in his cabinet, who insulted Modi on X and kicked up a diplomatic firestorm in January, were effectively sacked (they “resigned”).
Unsurprisingly, then, Male got what it wanted/needed. Cash. Among the deals signed by Muizzu in India were two bilateral currency swap agreements amounting to a $760 million bailout.
For India, the bilateral reset came as a relief amidst a slew of worrisome setbacks in India’s neighbourhood, andNew Delhi can now use its newly reinstated leverage over Male to regain lost influence and ramp up bilateral cooperation. New infrastructure projects have already been launched, and India’s Prime Minister Narendra Modi accepted an invitation to travel to the island nation for a state visit in 2025. In the meantime, India will continue to assist with the Greater Male Connectivity Project, the largest-ever infrastructure project in the country, funded by a line of credit through the Exim Bank of India, which now includes a commercial port at Thilafushi to reduce congestion at Port Male.
For his part, Muizzu recently took steps to introduce India’s prized United Payments Interface in the Maldives and discussed a potential FTA with Modi. In any case, the possibility of easier and cheaper trade in local currencies (with India’s credit line) is clearly in Male’s interest.
Importantly, New Delhi can now push for a comprehensive reinstatement and expansion of maritime security ties with Male. The strategically significant Joint-Hydrographic Survey Agreement, which Muizzu’s administration scrapped, and the UTF Coast Guard Harbor Project, which was put on hold, will likely make comebacks. However, Indian policymakers must tread carefully and ensure that such moves do not breed the kind of public resentment that fed the “India-Out” campaign. For instance, a return of Indian security personnel to the island remains politically infeasible.
Equally, even as Muizzu has sufficient political capital (his party swept parliamentary elections this year) and time to weather criticism for the reversal in Male’s India policy, there will be limitations to his willingness or ability to accommodate Indian security demands and concerns.
For instance, an obvious concern for New Delhi is greater maritime security cooperation between Male and Beijing. China’s naval presence in the Indian Ocean continues to increase, and earlier this year, a Chinese “research” vessel, Xiang Yang Hong, spent considerable time in port and around the Maldives. Indian naval officers believe that such ships collect sensitive hydrographic and seabed data – a precursor to the PLA Navy’s planned submarine deployments.
New Delhi will probably be frustrated in attempts to limit Male’s defence partnership with Beijing, not only due to the President’s ideological preference but because Male has an equal, if not greater, imperative to engage Beijing for a debt restructure.
Meanwhile, Muizzu, reassured by India and China, can stay fiscally complacent and push forth his ambitious (expensive) development plans at the cost of economic sovereignty. In the process, the archipelago may become even more vulnerable to external debt and heightened geopolitical competition, even as the country oscillates between and continues to play India and China against each other with a statecraft template all too familiar in South Asia today.
About the author
Ankit Tiwari
Ankit Tiwari is a Research Associate at the Council for Strategic and Defence Research, a think-tank based in New Delhi.
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