India and Maldives Usher in a New Chapter: $565 Million Credit Line, FTA Talks, and Local Currency Trade
- MGMMTeam
- Jul 25
- 3 min read
On the occasion of the Maldives’ 60th Independence Day and the 60th anniversary of diplomatic relations with India, Prime Minister Narendra Modi announced a transformative financial and strategic partnership package during his visit to Malé. Addressing a joint press conference with Maldivian President Mohamed Muizzu, PM Modi unveiled a $565 million Line of Credit (LoC) aimed at supporting priority infrastructure and development projects in the island nation.
This visit, marked by symbolism, cooperation, and a clear shift in diplomatic tone, is being widely seen as a re-calibration of India-Maldives ties after months of diplomatic distance. Modiji, the Guest of Honour at the national celebrations, described the Maldives as a “valued maritime neighbor” and reaffirmed India’s unwavering support in both development and security.
Strengthening Economic Foundations with Strategic Finance
The new $565 million Line of Credit will support key infrastructure initiatives such as housing, transportation, and renewable energy. It follows India’s past financial commitments, including its pivotal role in the Greater Malé Connectivity Project (GMCP), one of the largest infrastructure projects in the Maldives.
Alongside the credit line, India agreed to restructure and reduce the Maldives’ annual repayment obligations on earlier Indian-funded loans. This gesture comes at a time when the Maldives is navigating a mounting debt crisis, with significant financial commitments due to external borrowings, particularly from China. India’s flexible terms are thus seen as not only generous but also strategic, helping the Maldives stabilize its economy while reinforcing regional trust.
Launching Talks on a Free Trade Agreement
In another significant step, India and the Maldives formally initiated discussions on a Free Trade Agreement (FTA). Terms of Reference (ToR) were exchanged, paving the way for structured negotiations that could enhance bilateral trade, investment flows, and regulatory harmonization.
An FTA between the two countries would mark a major evolution in their economic ties, fostering a rules-based framework for commerce and promoting private sector cooperation. India’s growing role as the Maldives’ top trading partner adds urgency and promise to these negotiations, especially as both nations seek to diversify economic engagement beyond traditional areas like tourism and fisheries.
Pioneering Trade in Local Currencies and Digital Payments
One of the most progressive outcomes of the summit was the agreement to conduct bilateral trade using local currencies—the Indian Rupee (INR) and the Maldivian Rufiyaa (MVR). This move is aligned with India's broader strategy of promoting rupee internationalization and reducing reliance on the U.S. dollar in regional trade.
To complement this, India and the Maldives are working to integrate digital payment systems. An agreement between India’s NPCI and the Maldives Monetary Authority will soon enable cross-border Unified Payments Interface (UPI) transactions. This advancement will facilitate smoother financial interactions for businesses and travelers alike, marking a digital leap in bilateral financial connectivity.
Diplomatic Reset and Cultural Symbolism
PM Modi’s visit was not only diplomatic but also deeply symbolic. He was received with ceremonial honors and chants of “Vande Mataram” by school children. The two leaders jointly released commemorative stamps celebrating 60 years of diplomatic relations, underlining shared history and mutual respect.
This visit also marks a crucial diplomatic reset. President Muizzu, who had previously been vocal about reducing Indian influence through his "India Out" campaign, adopted a markedly conciliatory and cooperative tone. Observers note that the Maldives’ increasing debt burden and China’s shifting stance may have prompted a renewed appreciation of India’s transparent and supportive development model.
Agreements Beyond Finance
Seven agreements and Memoranda of Understanding (MoUs) were signed during the visit, spanning fisheries, digital transformation, aquaculture, meteorology, and the recognition of pharmacopoeia standards. India also handed over 3,300 social housing units in Hulhumalé and supported the expansion of the Hanimaadhoo International Airport.
In the sphere of defense cooperation, India pledged continued assistance to the Maldives National Defence Force in maritime security, coastal surveillance, and capacity building. These measures are critical for both nations given their shared interests in a stable and secure Indian Ocean region.
Conclusion: A New Strategic Horizon
The visit of Prime Minister Narendra Modi to the Maldives has not only reset diplomatic ties but has also laid the groundwork for a deeper and more resilient partnership. From a generous financial package and progressive trade mechanisms to strategic security collaborations, the developments signal a mature and multifaceted relationship.
As the two nations step into a new era of cooperation, this renewed alliance underscores India’s vision for the Indian Ocean—built on trust, shared prosperity, and respect for sovereignty. The India–Maldives partnership is poised to grow, not just as a bilateral relationship, but as a model of regional solidarity in a complex geopolitical landscape.
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