A quiet Chinese challenge to India's pre-eminence in South Asia through diplomatic and aid effort has now been extended to small island nations dotting the Indian Ocean. While China, Japan, South Korea and Southeast Asian nations fight over specks of islands and reefs in East and South China Sea, mainly because of undersea resources, islands in the Indian Ocean are emerging as a new focus for struggle. The latest hotly contested arena: Maldives, a chain of 26 islands about 1000 kilometers due south from India. With just 320,000 nationals, Maldives has assumed a disproportionately large profile primarily because of its geopolitical position astride strategic sea lines of communication and China's attempt to win influence.
The rivalry was brought to light when Maldives canceled a lucrative contract granted to Indian and Malaysia companies amid speculation that a Chinese company was behind the move, although the reality could be more prosaic. In November, the Maldivian government unilaterally terminated an agreement with India's GMR Infrastructure, Ltd., and Malaysia Airports Holdings Berhad to operate and modernize Ibrahim Nasir International Airport in Male, citing irregularities in the award of the $511 million contract.
The two firms were jointly awarded the 25-year contract in 2010. The largest Indian foreign direct investment in Maldives had huge symbolic importance for India's profile in the atoll nation. GMR took the battle all the way to the Singapore Supreme Court, which ruled that Maldives indeed had the power to take control of the airport. GMR intends to seek compensation of more than $800 million from the Maldivian government for terminating the deal whereas Male is insisting on a forensic audit from an international firm.
Many in India had expected New Delhi to escalate the conflict, by declining to release annual budgetary support of $25 million, forcefully reminding Male about its security dependence on India. Ignoring such calls, the Indian government has been quick to convey to Maldives that, if there were political reasons for the contract's cancellation, these "shouldn't spill over into a very, very important relationship, a very valuable relationship" between the two states. Two days after the project's cancellation, the Maldives defense minister flew to Beijing.
New Delhi recognizes the strategic importance of Maldives. Any escalation by India would have only fanned anti-India sentiments in the island nation, allowing other powers, especially China, to further entrench themselves at India's expense. It's possible that the military government's move to cancel the contract was primarily political, setting the stage for 2013 elections. After ousting the democratically elected Mohamed Nasheed in what was in effect a coup in February 2012, current President Mohamed Waheed is expected to contest the presidential polls in 2013. The pressure of competitive politics may have led him to exploit anti-India sentiment being fanned by extremist groups in this Muslim nation.
New Delhi has also hinted at the possibility of external forces playing a role in the contract's cancellation, with suggestions that the Maldivian government wanted to push out the Indian company, replacing it with a Chinese firm. Waheed's coalition partner, the radical Islamic Adhaalath Party, made it clear that it would "rather give the airport contract to our friends in China."