The Maldivian government’s decision to cancel the GMR airport contract in Male has come as a shock to New Delhi. India sees itself as primus inter pares among the external partners of this Indian Ocean archipelago. Hence the surprise when, after repeated Indian entreaties, the Male government decided to scrap what was supposed to be a tangible symbol of Indo-Maldivian ties. Some argue that if New Delhi could not ensure its writ in the Maldives, a country where all the main political players broadly agree India should be the country’s main foreign partner, then any greater foreign policy ambitions are delusional. A better way to look at the Maldivian affair would be to see it less as a geopolitical challenge and more as a test run of how to respond when an Indian firm runs afoul of a foreign government. The question should be: what is New Delhi’s role in such a dispute? This is a crucial issue. There is a precedent involved. India is itself not shy of wielding domestic cudgels against erring foreign multinationals. And it is quick to bristle when foreign governments try to intervene on behalf of their firms. There is also an image involved. India has been careful to portray the expanding global footprint of its companies as commercially-driven with a minimal strategic subtext. This is a useful image as it implies Indian overseas investment is not a security or sovereign threat to anyone else.

This does not mean New Delhi should not support Indian firms when they venture overseas. That is a standard part of diplomacy and any State’s external policy. The easy part for a government is the facilitation of investment and trade. The difficult part is when, as happens more often than it should, the Indian State must use non-commercial leverage to help Indian firms overseas. This has become especially common because of the appetite for mineral resources and construction projects — and hefty cash reserves — of Chinese firms.

But there is a fine line to be drawn between being a modern East India Company and a nation seeking to level the field in a competitive global economy. Which is why India should be cautious in its Maldivian reaction. Going by present evidence, while GMR has a sound legal position, there are domestic political issues that the Male government is wrestling with — including a new airport tax and a loss of Maldivian shop jobs — that must also be considered. India should seek to resolve these under-the-horizon issues even while standing firm on the sanctity of the contract. Given the special ties between these two South Asian nations, it is a diplomatic failure that these were not resolved before the crisis came to a head.