India increases financial assistance to Maldives to Rs 600 crore

New Delhi,  Feb 1: India has increased its financial assistance to the Maldives from Rs 400 crore to Rs 600 crore, signaling a renewed commitment to its island neighbour amid ongoing efforts to mend ties.

The move comes as Malé attempts to recalibrate its foreign policy following tensions that arose after President Mohamed Muizzu’s election and his initial pro-China stance.

Relations between New Delhi and Malé faced turbulence early in President Muizzu’s tenure when he insisted on the withdrawal of Indian military personnel from the Maldives. The situation worsened when three Maldivian deputy ministers made derogatory comments about Prime Minister Narendra Modi, triggered by a social media post promoting Lakshadweep as a potential alternative to Maldivian tourism.

In response, the Maldivian Foreign Ministry distanced itself from the remarks, and the three junior ministers were suspended, with two later resigning. By early 2024, India had withdrawn its technical military personnel from the Maldives. The recent visit of the Maldivian Defence Minister and President of Maldives to India and the Minister of External Affairs to Malé resumed cooperation and strengthened diplomatic ties.

Concerns Over Maldives’ Trade Pacts

Despite the diplomatic recalibration, India’s concerns about the Maldives’ economic stability persist. In a recent press briefing, MEA spokesperson Randhir Jaiswal highlighted potential fiscal risks stemming from new trade agreements signed by the Maldives without mentioning any country’s name.

“We remain in close touch with Maldivian authorities on the situation facing them. Recent agreements that are likely to result in revenue loss for the Maldives government are, obviously, a matter of concern and do not bode well for the long-term fiscal stability of the country. We would, obviously, need to take that into account while framing our own policies,” Jaiswal stated.

The Maldives faces significant external debt with World Bank data showing that it owes $1.37 billion to China and $124 million to India, as reported by the Reuters News Agency.

Analysts warn that the free trade agreement between the Maldives and China, which took effect on January 1, could deepen Malé’s balance of payments deficit, reduce customs revenue, and expose it to supply chain vulnerabilities. The Maldives also signed a trade pact with Turkey last year, which involved reduced tariffs on both sides.

India’s continuing support of the Maldives signals its intent to maintain influence in the strategically important Indian Ocean country and reinforce its role as Malé’s key partner. However, concerns remain over the Maldives’ economic vulnerabilities.

Other Regional Aid Priorities in Budget

The Ministry of External Affairs (MEA) has budgeted Rs 5,483 crore for aid to neighbouring and strategic nations. There is a rise from last year’s Rs 4,883 crore allocation and highlights India’s “Neighbourhood First” policy.

Key Allocations:

Bhutan remains the top recipient. Bhutan receives Rs 2,150 crore, up from Rs 2,068 crore last year and continues its role as Bhutan’s primary development partner.

Afghanistan: Aid reduced from Rs 200 crore to Rs 100 crore, reflecting India’s cautious engagement with the Taliban government, focusing primarily on humanitarian and economic cooperation.

Chabahar Port (Iran): Maintained at Rs 100 crore, highlighting its strategic importance for trade with Afghanistan and Central Asia.

Myanmar: Allocation increased from Rs 250 crore to Rs 350 crore.

Sri Lanka: Aid increased from Rs 245 crore to Rs 300 crore.

Nepal: Aid remains steady at Rs 700 crore.

Bangladesh: Allocation remains unchanged at Rs 120 crore.

African Nations: Aid increased from Rs 200 crore to Rs 225 crore, reflecting India’s growing engagement with the Global South.

Latin America: Allocation doubled from Rs 30 crore to Rs 60 crore.

Disaster Relief: Increase from Rs 10 crore to Rs 64 crore, reflecting India’s increasing proactive role in global humanitarian assistance.