Maldives presents an interesting case of realism in international relations which postulates that States prioritize their national interests and security. When viewed from this perspective, the upcoming State visit by Hon’ble prime minister of India should not be startling at the least. For India, Maldives is a “very important partner” in consonance with its Neighborhood First policy and the “Mahasagar” outreach to stabilize relationships in the Indian Ocean region and beyond.

As acknowledged by the Maldivian authorities, India has been a first responder to their distress calls both in the political and economic spheres. The recent roll over of $50 million dollars in treasury bills of the Maldivian government being a case in point. Over the years, India has provided a wide-ranging support for Maldives through investments in infrastructure projects (Greater Male connectivity project), emergency assistance during Covid-19, and several projects focused on human & community development. Even in testing times, India has chosen to exert soft to mild hard power over Maldivian overtures, specifically during the India out campaign, reflecting its stature as an emerging global power. This not only allowed India to portray a stance of its own realism to stabilize the Indian ocean region but also provided the scope to present itself as a reliable partner based on mutual respect.

For Maldives, the reset or re-balancing of the diplomatic relations for India stems from a fundamental need to stabilize its own economy. At a structural level, Maldives runs a high current account deficit at around 20% of its GDP. While it enjoys a surplus in the services account through earnings from foreign tourist arrivals, its high merchandise import dependence creates permanent fissure. Consequently, it always runs a risk of being exposed to currency and foreign investment shocks which can derail its economic functioning. Resultantly, it depends heavily on external assistance (foreign aid and loans) to tide over these challenges, exposing it to roll-over risks. A key factor highlighted by the global rating agencies in sequential downgrade of Maldivian sovereign ratings, which is now placed next to default category, indicating very high credit risk. Also, Maldives fared poorly in comparison with its cohort of islandic economies where tourism and external income forms a significant part of the country’s GDP, underscoring the deeper and structural problems. Further, between July 2020 to January 2025, country and equity risk premiums (Aswath Damodaran methodology) of Maldives surged from 5.46% to 12.02% and 9.84% to 16.35% respectively. This corroborates the increased risk that global investors associate with the investments in Maldives.

Furthermore, geographical realities, emerging threats from climate change, resultant loss of natural habitat for fish rearing (which is the major non-tourism source of external revenue) limit the credible revenue generation ability of Maldives from other sectors/ sources in the short to medium term.

In the recent past Maldives has seen a moderation in both exports to (majorly tourism) and imports from India. While it may be alluring to attribute the fall in tourist foot fall from India to political rhetoric, the reasons may be more economic. The foreign exchange rate between INR and MVR has seen a secular fall in the last five years compared to other favorite tourist destinations that Indians are increasingly choosing for their vacations. it means all this remaining same, vacations in Maldives are becoming relatively costlier for Indians.

Notwithstanding the economics, the political rhetoric in the Maldives is not exactly helping in rising the tourist foot falls from India. Indian tourism industry is expected to reach around 60 billion USD by 2034, and Maldives cannot afford to reduce its share in this growing pie. While trajectory of exchange rates driven by complex factors is much beyond the control of individual countries, the Maldivians stand to gain by resetting the rhetoric with India. This includes re-balancing the diplomatic dialogue aimed at a broader range of issues like improving the Indian market share in tourist arrivals and deepening other economic / security engagements that are mutually beneficial.

Again, from a realism perspective, the India out campaign may or may not have resulted in some realpolitik gains, but it surely does not bode well for the long-term stability of Maldives. India remains a major supporter of Maldives and its economic aspirations, providing various forms of external assistance, foreign direct investments. The current reset may also serve the Maldivian interest to assuage its international investors that credible external support is available in form of soft loans and credit/ swap lines from India, aiding the country to improve its risk profile and sovereign ratings.

Thus, addressing structural problems necessitates Maldives to adjust its realism prism and re-balance its global outreach including with that of India. The State visit by the Indian prime minister is both good for optics and real change. For Indian dispensation, this also provides an opportunity to broad base the support among the Maldivian population and garner wider acceptance on India’s engagement with Maldives. Going forward, by building a credible narrative amongst its neighbors, India can send clear message to world that as an emerging global power, it can stand with the voices of global south while pursuing and preserving its interests.

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