unfortunately it's impossible to say what this is without a physical examination. i suggest you take the child to her pediatrician for an exam. it's possible what you're seeing is not so much an indentation as a bulging of the belly button that gives the impression of an indentation above the navel. this could indicate your granddaughter has an umbilical hernia. luckily these are not serious and may not even require treatment. however that's just a wild guess. you should have your granddaughter examined by her pediatrician to find out exactly what's going on. wishing you both all the best!
my 2 yr old grandaughter has a small indention an inch above her belly button that hasn't been there until now.