Lessons from the Atoll
In this week’s edition of The Indian Radius, we unpack the Prime Minister’s recent visit to the Maldives; why it sent a strong signal, and what it will take to keep the sun shining on this renewed partnership.
Credits: Ministry of Fisheries and Agriculture
PM Modi’s visit to the Maldives has been widely described as a diplomatic reset; a moment of reconciliation and reassurance. But to fully appreciate its significance, we must remember where ties stood just two years ago - when the relationship was fraught with distrust and bitterness among both the political elites and the public.
What happened then and what changed?
In the 2023 presidential campaign, President Mohamed Muizzu adopted an “India Out” slogan, demanding Indian troop withdrawal and pursuing closer ties with China. Then, in early 2024, derogatory remarks by coalition ministers toward India led to a diplomatic row, causing a 42% steep decline in Indian tourism, which heavily impacted an economy where tourism is nearly one-third of GDP.
Soon, Chinese loans became controversial, while mounting sovereign distress raised default risks by late 2024. Dwindling forex reserves and loss of tourism revenue forced Malé to seek urgent relief.
Re-enter India, which responded with financial rescue in the forms of currency swaps, debt rollover, and development grants, helping prevent sovereign default. In May 2024, the Maldivian Foreign Minister Moosa Zameer’s visit to New Delhi cemented the willingness to re-engage with India economically, paving the way for dialogue and aid partnerships.
Gradually, the Maldives' leadership began recalibrating its foreign policy. Though not abandoning China outright, Muizzu aimed to balance Sino-Indian ties, recognising India’s traditional centrality as a neighbour and economic partner.
While this is a win for India in its immediate neighbourhood, it is not one to be taken for granted. The relationship demands consistency. After all, similar stability has yet to be achieved with Bangladesh, where the stakes remain just as high.
What were the outcomes of this visit?
PM Modi attended the 60th anniversary of Maldivian independence as the Guest of Honour, the first time an Indian Prime Minister has been part of such celebrations. This is symbolically important, given that in the initial years of his presidency, President Muizzu prioritised visits to Turkey and China over India.
During the course of this visit, India extended a Line of Credit (LoC) of US$550 million (around ₹4,850 crore) for infrastructure and development projects. An amendatory agreement reduced the Maldives’ annual debt repayment on existing Indian-funded LoCs by approximately 40%, from US$51 million to US$29 million per year.
They also exchanged eight bilateral agreements, covering sectors such as fisheries, digital UPI payments, climate action, health (portable BHISHM Health Cubes), housing, roads & drainage. This also included defense equipment transfer and the inauguration a new Ministry of Defence building in Malé.
Formal negotiations were launched for a Free Trade Agreement (FTA) and a bilateral investment treaty. Modi emphasised India as the Maldives’ “most trusted friend” and first responder for crises, reinforcing India’s strategic role in the Indian Ocean region.
Both the LoC and debt relief gesture signal Indian goodwill, with trade and investment talks paving the way for deeper bilateral economic integration. While these are welcome developments, India cannot afford complacency. The risk of reversion remains.
The Maldives remains economically tied to China, especially through debt-financed infrastructure and its newly implemented trade agreement. The China–Maldives Free Trade Agreement, effective January 1, 2025, allows up to 95% of traded goods to enjoy zero tariffs. Moreover, between 2013 and 2018, the Maldives accumulated more than US$1.5 billion in debt to China, constituting about 38% of its external debt.
Despite these inroads, Maldives is dependent on India for food supplies, medicines and is also its largest trading partner. Hence, India’s enduring support through concessional aid, essential goods, tourism revenue, and crisis assistance forms a resilient economic lifeline.
To further understand the use of these instruments and their objectives, read The Takshashila Institution’s latest discussion document that outlines India’s economic diplomacy toolkit in the neighbourhood. Each tool, when deployed, has the potential to enhance India’s leverage and shape outcomes that align with its regional priorities. Guided by the illustrative framework, India must ensure that the use of this toolkit is institutionalised, iterative, and outcome-oriented.
What We’re Reading and Listening to
[Podcast] Tune into the latest episode of The Great Power Show, where Manoj Kewalramani and Katja Drinhausen unpack the nuances of ideology formation and policy communication in China
[Opinion] Read Anupam Manur’s latest piece in The Indian Express to understand why India’s trade talks with the US need a reality check and a back-up plan
[Video] Watch Anushka Saxena talk to Neena Gopal in this episode of The Global Express on how India can mitigate extreme import dependency on China
Thank you for reading this edition of the Indian Radius.