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India-Maldives Inch Closer with $ 50 Million Defence Line of Agreement

With $ 50 Million agreement to boost Maldives maritime capabilities India is definitely eying on an opportunity to enhance its geopolitical stakes in the region

India which signed a Defence line of Credit (LoC) Agreement worth $50 million on Sunday with Malidives is its reiteration of the commitment to the Maldives security to boost the maritime capabilities of the strategic island nation.

The agreement for defence projects was signed between the Finance Ministry of Maldives and the Export Import Bank of India.

Foreign Minister of India, Jaishnakar, who is on a two-day visit to Maldives, tweeted, “Useful exchange on our defence cooperation. India will always be a reliable security partner for the Maldives”.

Jaishankar said he was, “Glad to sign with Defence Minister @MariyaDidi the UTF Harbour Project agreement. Will strengthen Maldivian Coast Guard capability and facilitate regional HADR (Humanitarian Assistance and Disaster Relief) efforts. Partners in development, partners in security”.

Maldivian Defence minister, Didi said it was a great pleasure to welcome Jaishankar.

“From time immemorial Defence Cooperation has been a key element of the sisterly relationship that exists between India and the Maldives. The Coast Guard Harbour & Dockyard at SIFAVARU will mark another significant milestone,” she tweeted.

Importance of the Agreement

In spite its small size, Maldives is currently being wooed by a number of developed and developing countries.  This Defence line of Credit (LoC) Agreement will not only strengthen India’s stakes in geopolitics of the region, the agreement is strategically important to contain China’s growing clout in the island.

China,  in pursuit of its own geo-economic goals, views Maldives as one of the key components of its ‘Belt and Road’ Initiative (BRI), and is actively establishing its presence in this strategically positioned island-state by involving itself in infrastructure projects in the archipelago.

China’s BRI, involving the Maldives amongst other IOR island- and littoral-States, has certainly widened the current Chinese sphere of influence within this island nation.

The growing Chinese influence in the Maldives, consequent upon the planned- or ongoing execution of a large number of Beijing-led investment projects, is a major concern for India.

In 2018, the GDP of the Maldives was in the range of US$ 5.3 million.  Currently, the island state owes US$ 3.4 million in the form of debt to China.  This represents 70% of Maldives’ total external aid.  This alarming level implies that, 2020 onwards, 15% of Malé’s budget will have to be spent on paying back this debt.

The former Maldivian President, Abdulla Yameen, had allegedly used massive amounts of Chinese capital to finance infrastructure projects in the island nation. One such project was that of a hospital in Malé that had run up a cost of US$ 140 million, much more than a rival offer of US$ 54 million.

However, the growing dependence on China was not appreciated by the Maldivian electorate, and, amongst other factors, this resulted in Yameen’s political defeat in the 2019 parliamentary elections.

The current incumbent, Ibrahim Mohamed Solih, having won a landslide victory, is perceived to be an outright proponent of India’s interests in the region and sceptical of

Strategic importance of Maldives for India

The Indian Ocean is a key highway for global trade and energy flows. The Maldives is geographically positioned like a ‘toll gate’ between the western Indian Ocean chokepoints of the Gulf of Aden and the Strait of Hormuz on the one hand, and the eastern Indian Ocean chokepoint of the Strait of Malacca on the other.

Thus, while the International Shipping Lanes (ISLs) in the vicinity of the Maldives have broad strategic significance for global maritime trade, they are of particular importance to India.  Fifty per cent of India’s external trade and eighty per cent of its energy imports transit these ISLs.

It is obvious, therefore, that any significant Chinese presence in this region has the potential to impede trade movement that is vital to India’s economic interests, and such a possibility must be guarded against.

History of India-Maldives bilateral relationship

As close and friendly neighbours, India and Maldives share ethnic, linguistic, cultural, religious and commercial links steeped in antiquity and enjoy cordial and multi-dimensional relations.

India was among the first to recognise Maldives after its independence in 1965 and to establish diplomatic relations with the country. India established its mission at Malé in 1972. 

Bilateral relations have been nurtured and strengthened by regular contacts at all levels. Since establishment of diplomatic relations, almost all Prime Ministers of India visited the Maldives.

India and Maldives have consistently supported each other in multilateral fora such as the UN, the Commonwealth, the NAM and the SAARC.

India is a leading development partner of Maldives and has established many of the leading institutions of Maldives including the Indira Gandhi Memorial Hospital (IGMH), Faculty of Engineering Technology (FET) and Faculty of Hospitality & Tourism Studies(IMFFHTS).

Bilateral assistance

India has offered assistance to Maldives wherever required. After the tsunami that struck Maldives on December 26, 2004, India was the first country to rush relief and aid to Maldives.

India provided a budget support aid of Rs.10 crores in view of the serious financial difficulties being faced by Maldives on account of the tsunami and related factors. Assistance of US Dollars equivalent of Rs.100 million in July 2007 towards assistance was given following tidal surges in May 2007.

Currently, India has provided US $ 100 million Stand-by Credit facility (SCF) to Maldives, including long-term loans and revolving credit for trade.

Under new Line of Credit worth US$40 million offered by the Government of India to Maldives, the Overseas Infrastructure Alliance (OIA) of India has been given a contract to construct485 housing units in Maldives. Capacity Building and Training Capacity building and skills development is one of the key components of India’s assistance to Maldives. India offers several scholarships to Maldivian student

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