India has taken a significant step to bolster its strategic presence in the Indian Ocean region by striking a deal to bail out Sri Lanka's Colombo Dockyard. Mazagon Dock Shipbuilders Ltd (MDSL), a state-owned entity under India's Defence Ministry, has announced the acquisition of a 51% stake in Colombo Dockyard PLC (CDPLC) for US$52.96 million. This move marks MDSL's first international acquisition and is viewed as a strategic initiative to expand India's maritime influence and counter China's growing footprint in the region.

The acquisition of Colombo Dockyard provides India with a strategic foothold in the Indian Ocean Region, a crucial maritime corridor. Located within the Port of Colombo, CDPLC is the largest shipbuilding and repair facility in Sri Lanka, serving a diverse clientele across Asia, the Middle East, and Africa. The deal is expected to enhance MDSL's capabilities in shipbuilding and repair, allowing it to serve global maritime clients more effectively.

Colombo Dockyard has been facing financial difficulties, with a record loss of approximately $38 million in 2023. The company's struggles were exacerbated by losses incurred on shipbuilding contracts agreed upon at lower prices before the COVID-19 pandemic. The exit of Japan's Onomichi Dockyard Company Ltd, which previously held the 51% stake, further compounded the situation. The Sri Lankan government then requested the Indian government to encourage Indian investors to consider Colombo Dockyard. A default by CDPLC would have had serious implications for the Sri Lankan government, as a significant portion of the remaining stake is owned by the Employees' Provident Fund.

The acquisition is seen as a crucial move to contain China's expanding influence in Sri Lanka's maritime industry. In 2022, India provided substantial aid to Sri Lanka, amounting to US$4 billion, when the country defaulted on loan repayments. This financial assistance increased India's influence over Sri Lanka. The acquisition of Colombo Dockyard further solidifies India's position in the region, allowing it to compete with China's presence in the Colombo port.

Mazagon Dock Shipbuilders, a leading warship and submarine builder in India, views this acquisition as part of its broader expansion strategy. With a strong order book and a desire to increase its share of the global shipbuilding market, MDSL aims to leverage Colombo Dockyard's existing infrastructure and client base to enhance its capabilities. The acquisition aligns with India's vision of becoming a regional maritime power with global ambitions.

The deal is expected to be finalized within six months, subject to statutory and regulatory approvals. Once completed, Colombo Dockyard will become a part of Mazagon Dock Shipbuilders. This acquisition is a significant step for India, strengthening its strategic position in the Indian Ocean and enhancing its maritime capabilities.