Sri Lanka is in serious economic trouble, and India is extending a helping hand. An analysis.
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- The story: The past few months have been bad for the Sri Lankans, as they struggled with both a food crisis, and a serious economic crisis. A lot of that pain was due to wrong policymaking. India is trying to help Sri Lanka now.
- Emergency: Early in 2021, the Sri Lankan government declared an economic emergency amid rising food prices, a depreciating currency, and rapidly depleting forex reserves. Now, it's trying to extricate the country from the crisis.
- Details of the plan: There are four aspects of it.
- Lines of credit - LoC for food, medicines and fuel purchases have been granted by India. A "Line of credit" is a credit facility extended by a bank or any other financial institution to a government, business or an individual customer, that enables the customer to draw the maximum loan amount.
- Currency Swap - A currency swap agreement to deal with Sri Lanka's balance of payment issues. A currency swap (exchange) between the two countries is an agreement or contract to exchange currencies with predetermined terms and conditions.
- Modernisation Project - An early modernisation project of the Trinco oil farms that India has been pursuing for several years. The Trincomalee Harbour, one of the deepest natural harbours in the world, was developed by the British during World War II. The projects to develop oil infrastructure in Trincomalee have been pending since 2017.
- Indian investments - A Sri Lankan commitment to facilitate Indian investments in various sectors.
- Twists and turn in relations: The killing of Indian fishermen by the Sri Lankan Navy is a lingering issue between these two nations. In 2019 and 2020, a total of 284 Indian fishermen were arrested and a total of 53 Indian boats were confiscated by the Sri Lankan authorities.
- Infra projects - In 2021, Sri Lanka cancelled an MoU signed with India and Japan for the East Coast Terminal project. India protested the cancellation though it later agreed to the West Coast Terminal being developed by the Adani group.
- Chinese influence - China’s rapidly growing economic footprint (and political clout as a corollary) in Sri Lanka is straining India-Sri Lanka relations. China is already the largest investor in Sri Lanka, accounting for 23.6% of the total Foreign Direct Investment (FDI) during 2010-2019 as against 10.4% from India. It is also one of the largest export destinations for Sri Lankan goods and holds over 10% of its external debt.
- 13th Amendment of the Sri Lankan Constitution - It envisages devolution of necessary powers to the provincial councils to address the just demand of the Tamil people for equality, justice, peace, and respect within a united Sri Lanka. It has not been implemented well.
- History: The India-Sri Lanka relationship is an ancient one, and both have built upon a legacy of intellectual, cultural, religious and linguistic intercourse. During the civil war, India supported the right of the Government of Sri Lanka to act against terrorist forces. The Indian Housing Project is Government of India’s flagship project of developmental assistance to Sri Lanka. Its initial commitment is to build 50,000 houses for those affected by the civil war as well as for the estate workers in the plantation areas. The Reserve Bank of India (RBI) had signed an agreement for extending a USD 400 million currency swap facility to Sri Lanka to boost the foreign reserves and ensure financial stability of the country, which was badly hit by Covid 19 pandemic. Recently, India has also supplied Covid-19 Vaccines to Sri Lanka. India and Sri Lanka conduct joint Military (Mitra Shakti) and Naval exercise (SLINEX). Sri Lanka is also a member of groupings like BIMSTEC (Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation) and SAARC in which India plays a leading role.
- Summary: Today, given the way the world is changing, both the countries need to work in close coordination. As the larger one, India has to carry Sri Lanka along, and needs to be patient with it. There is a need to step up our people-centric developmental activities while scrupulously staying clear of any interference in Colombo’s domestic affairs. So building on the "Neighbourhood First" policy with Sri Lanka is important for India to preserve its strategic interests in the Indian Ocean region. China's steadily growing footprint, and rising heft of the PLA Navy, are warning signs.
- EXAM QUESTIONS: (1) Explain the reasons Sri Lanka fell into a serious economic-food-energy crisis in 2021. (2) What steps were taken by India to give Sri Lanka support in emerging from the 2021 emergency? List and explain. (3) What are the various facets of the China - Sri Lanka - India situation in South Asia? Analyse.
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