In a significant diplomatic and economic gesture, India extended a ₹4,850 crore line of credit (LoC) to the Maldives during Prime Minister Narendra Modi’s state visit to Malé in July 2025. This development, along with the initiation of Free Trade Agreement (FTA) talks and bilateral investment treaty discussions, marks a pivotal step in revitalizing India-Maldives relations under the Neighbourhood First and MAHASAGAR vision. It also signals a thaw in previously strained ties under President Mohamed Muizzu, who had campaigned on an “India Out” plank.
Background
The India-Maldives relationship has traditionally been close, built on shared history, culture, security, and geography. Ties were strained after President Muizzu’s election in November 2023, as he demanded withdrawal of Indian military personnel. India had deployed personnel for humanitarian and rescue operations using helicopters and an aircraft. To address tensions, India replaced military staff with civilian operators in 2024. PM Modi’s July 2025 visit is the first by a foreign head of state during Muizzu’s term and marks a reset in relations.
Significance of the ₹4,850 Crore Line of Credit
- It reaffirms India’s role as the Maldives’ most trusted development partner.
- The credit will fund infrastructure projects, aiding Maldives’ economic recovery and sustainable growth.
- An amendment to a prior dollar-denominated LoC was also signed, reducing Maldives’ annual debt repayment by 40%, from $51 million to $29 million.
- India’s aid is a part of economic diplomacy, balancing influence in the Indian Ocean Region amid rising Chinese presence.
Key Objectives
- Strengthen Economic Cooperation: Through infrastructure support and investment treaty frameworks.
- Launch FTA Talks: To facilitate greater trade and economic integration.
- Rebuild Political Trust: Amid recent hostilities and geopolitical shifts.
- Support Maritime Security: Under India’s SAGAR and MAHASAGAR vision to ensure regional peace and prosperity.
- Ease Debt Burden: By restructuring existing obligations, promoting long-term fiscal stability for Maldives.
Features of the Agreement and Visit
- Bilateral Investment Treaty (BIT) discussions initiated to enhance investor protection.
- FTA negotiations started—potential to lower tariffs and promote two-way trade.
- Warm diplomatic gestures—Muizzu personally welcomed Modi at the airport.
- Modi honored as Chief Guest for Maldives’ Independence Day—symbolic of renewed friendship.
- High-level talks and guard of honour at Republic Square showed elevated bilateral importance.
Diplomatic Repercussions
- The move may counterbalance China’s influence in Maldives, as Muizzu was seen as pro-China.
- India’s approach underlines its strategic patience and soft-power diplomacy.
- It projects India as a net security provider and development partner in the region.
- Helps Maldives stabilize politically and economically, enhancing regional security architecture.
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