The evolution of latest India Sri Lanka relations - a study
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India-Sri Lanka relations - Through thick and thin
- The story: India and Sri Lanka have had a long journey together, if one looks at their geological history! But in more recent human times, the relationship has seen the rough and tumble of modern politics quite often.
- Nature of relationship: India’s development partnership with SL has been demand-driven, with projects covering social infrastructure like education, health, housing, access to clean water and sanitation, besides industrial development.
- India’s ‘Neighbourhood First’ policy towards Sri Lanka also resonated with Sri Lanka’s ‘India First’ foreign and security policy in 2020.
- In recent times, due to Chinese intervention, the ties between the two countries have been strained. The condition may worsen with Sri Lanka declaring a state of emergency in the country.
- Economic ties: India is Sri Lanka’s third largest export destination, after the US and UK. More than 60% of Sri Lanka’s exports enjoy the benefits of the India-Sri Lanka Free Trade Agreement. India is also a major investor in Sri Lanka. Foreign Direct Investment (FDI) from India amounted to around $ 1.7 billion over the years from 2005 to 2019. In July 2020, the RBI signed a currency-swap agreement with the Central Bank of Sri Lanka (CBSL) under the SAARC Currency Swap Framework 2019-22, for withdrawals of up to $400 million.
- A bad turn: The political (and economic) ties took a turn for the worse in February, 2021 when Sri Lanka backed out from a tripartite partnership with India and Japan for its East Container Terminal Project at the Colombo Port, citing domestic issues. Later, the West Coast Terminal was offered under a public private partnership arrangement to Adani Ports and Special Economic Zones Ltd.
- State of Emergency: Sri Lanka, running out of forex reserves for essential imports like food, declared a state of economic emergency in September 2021. It depends heavily on imports to meet even its basic food supplies, such as sugar, dairy products, wheat. The price of food items has risen in tandem with the depreciating rupee. The Tourism sector has also drastically suffered since the terror attacks of 2019, followed by the pandemic and the FDI inflows have halved from $1.2 billion (2019) to $670 million (2020). Its public Debt-to-GDP ratio was at 109.7% in 2020 and the external debt-to-GDP ratio stood at 62% in 2020.
- SL's Debt-to-GDP ratio: This metric compares a country's public debt to its Gross Domestic Product (GDP), expressed as a percentage. Debt is what a nation owes, and GDP is what it produces (of which the revenues to the government will be used to pay back the debt). This ratio reliably indicates a particular country’s ability to pay back its debts. A country with a high debt-to-GDP ratio and low growth prospects may have trouble paying off public debts. India's ratio is nearing 90%, but given the young demographic and possibility of growth, no one is panicking. Not so with Sri Lanka, with a 109.7% ratio.
- The China angle: China became the largest bilateral creditor to SL, with loans to the public sector amounting to 15% of the central government’s external debt. Sri Lanka now relies on Chinese credit to address its foreign debt burden. China’s exports to Sri Lanka surpassed those of India in 2020 and stood at $3.8 billion (India’s exports were at $3.2 billion for the same year). China invested about $12 billion in Sri Lanka’s Infrastructure projects between 2006-19. China has formal control over Sri Lanka’s Hambantota port as a part of a 99-year lease, a big strategic plus. Sri Lanka has decided to establish a Special Economic Zone around the Colombo port city and a new economic commission, to be funded by China. The Colombo port handles 60% of India’s trans-shipment cargo.
- Summary: Nurturing the "Neighbourhood First" policy with Sri Lanka is important for India. Platforms like the BIMSTEC, SAARC, SAGAR and the IORA could be leveraged to foster cooperation in fields like technology-driven agriculture, marine sector development, IT & communication infrastructure etc. As part of its ‘Island Diplomacy’, India has to evolve in tune to the emergent realities and threats. In the technology sector, India can create job opportunities in Sri Lanka by expanding the presence of its IT companies.
- EXAM QUESTIONS: (1) Explain the manner in which Indian military involvement in Sri Lanka proved troublesome eventually. (2) What are the three emerging trends in India Sri Lanka relationship. Explain pointwise. (3) The Chinese involvement in Sri Lanka will eventually lead to India's greater involvement too. Do you agree? Analyse.
#SriLanka #India #China
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