- Right from the day, Prime Minister Narendra Modi assumed office at the Centre, the approach of the Union Government has been to develop sound neighborly relations with the countries, including the arch-enemy Pakistan. However, we all know what transpired eventually with Pakistan per se. Nonetheless, countries like Sri Lanka, Nepal, and Bangladesh continue to remain on the geostrategic radar despite minor irritants in growing the relationship stronger. Of course, China is leaving no stone unturned in attempting to leave behind its footprints by reaching out to these countries apart from cozying up to its all-weather ally Pakistan. We are aware of how China would wish to corner India in the game of one-upmanship.
PC: Rajeev Jayaswal
- Against this backdrop comes the news that Sri Lanka is teetering on the brink of financial crisis and India has agreed to provide a $1-billion line of credit much to the relief of the beleaguered island nation. This is on top of the $500-million line of credit for purchasing fuel and a currency swap of $400 million that India has facilitated in recent months. Know that Sri Lanka has a total deficit of $9.4 billion in foreign exchange and is facing the worst economic crisis in decades. Its official reserves fell to $2.9 billion in January with a sovereign bond repayment of $1 billion due in July. Things have come to this pass because Sri Lanka accumulated excessive debt over the years, particularly on account of sovereign bonds.
- We are also aware that Sri Lanka’s only strategy to repay this debt was to bank on its tourism industry and foreign remittances. Unfortunately, Lankan or for that matter the entire global tourism took a big hit due to the Covid pandemic. To add to the woes, populist policies of the Lankan government such as implementing tax concessions amounting to 1.5% of GDP and other missteps like switching to 100% organic agriculture have not helped one bit either. This has led to a huge shortage of dollars for import-dependent Sri Lanka, which in turn led to an acute crisis of essentials like fuel, medicines, and food, and ballooning inflation which hit a record 25% last month.
PC: Clem Chambers
- Mind you, China understands that extending a helping hand in aid to Sri Lanka has neither helped the Lankan economy nor earned Beijing a good reputation. As such, this is precisely why Colombo is now looking to New Delhi for help. But India needs to be careful here. Agreed, the present moment does provide an opportunity for New Delhi to enhance its strategic relationship with Colombo, but fundamental issues remain. Sri Lanka’s economic woes can only be resolved through IMF-mediated debt restructuring, something that Colombo now appears amenable to. Further, there is also the Tamil issue and devolution of powers to the ethnic community.
- This must be negotiated tactfully as overt Indian interference could once again create conditions for Sinhala nationalism to be deployed as a political tool. Ideally, the Lankan government will try to play both New Delhi and Beijing. India, therefore, must be smart here in balancing its moves to suit its own interests.
