Advantage New Delhi’ In Sri Lanka’s India Lifeline
GS Paper 2, IR.
Context:
- Ranil Wickremesinghe’s election as President of Sri Lanka in a crucial Parliament vote on July 20, 2022, provides India with an opportunity to take the lead in the foreign aid game in its neighbourhood.
- Sri Lanka has been facing economic turbulence since its pre-emptive default on its foreign debt obligations in mid-April this year — the mass protests in its wake eventually forcing the former President of Sri Lanka, Gotabaya Rajapaksa, to flee the country on July 12.
How Crucial Is Sri Lanka in Helping India Accomplish Its Goals?
- India and Sri Lanka have long-standing cultural and economic relations. The Tamils of Sri Lanka share many cultural, religious, and cultural customs with the Tamils of Tamil Nadu.
- Sri Lanka is at a key and important location in the Indian Ocean area, and it has significant geopolitical importance for various countries.
- Sri Lanka’s ports are positioned along the main marine routes. Their position is suitable for both commercial and industrial uses.
- Sri Lanka might potentially be a prospective military base; in fact, India and Sri Lanka have close military ties.
What Is the Indian Ocean Rim Association’s (IORA) Significance?
- The IORA is an international organisation made up of 22 Indian Ocean coastal states.
- It is a regional forum that brings together government, business, and academic officials to encourage collaboration and closer connection.
- The cooperative collaboration of India, Sri Lanka, and the Maldives in the IORA is significant since any danger in the Indian Ocean area would directly affect the three nations.
- The Indian Ocean Rim Association (IORA) has highlighted six priority areas for attention:
- Maritime safety
- Facilitation of trade and investment
- Fisheries administration
- Disaster risk mitigation
- Collaboration in academia and science
- Promotion of tourism and cultural interactions
- The IORA also aspires to promote common and sustainable interests in order to facilitate the region’s and hence the member nations’ balanced development.
Commercial Relations Between India and Sri Lanka:
- India is Sri Lanka’s important trading partner on a global scale.
- Following the India-Sri Lanka Free Trade Agreement, bilateral trade increased dramatically. Sri Lanka’s exports to India have surged, while India’s exports to Sri Lanka have expanded significantly, resulting in a widening of the trade balance.
- The India-Sri Lanka Free Trade Agreement (ISFTA), which entered into force in 2000, established the basic foundation for bilateral trade.
- The main assumption for signing the ISFTA was the asymmetry of the two economies. Other factors that contributed to the ISFTA’s signing were local socioeconomic sensitivities, safeguard measures to protect domestic interests, and revenue implications to avoid affecting high revenue-generating tariff lines in the short term.
- In order to earn IFSTA advantages, products exported between India and Sri Lanka must comply with the Rules of Origin requirement.
- There has also been an upsurge in Sri Lankan investments in India in recent years.
- Among the varied fields of investment are petroleum retail, information technology, financial services, hospitality, and tourism.
- The Comprehensive Economic Partnership Agreement (CEPA), was proposed as a follow-up to the FTA with Sri Lanka.
- Tourism is a vital link between India and Sri Lanka. India accounts for one out of every five visitors to Sri Lanka.
Opportunity For India Amidst Crisis Hit Sri Lanka:
- When faced with issues and seeking equal rights, Sri Lanka’s minority Tamil and Muslim minorities have historically looked to India for help.
- Despite past tensions, many members of the majority Sinhalese population appreciate India’s assistance in recent months.
- However, Sri Lanka has struggled to completely execute the 1987 India-Sri Lanka Peace Accord, which pledged new legislation to distribute authority to all provinces, including those with a Tamil majority.
- India’s attitude toward Sri Lanka is not motivated by retaliation towards China. It is historical and based on human-to-human relationships with a common culture.
- When it comes to Indian investments in Sri Lanka, they are people-centric, according to Smruti Pattanaik, a foreign policy research fellow at the Institute for Défense Studies and Analyses (IDSA) in New Delhi.
- India has taken considerable measures to repair ties with Sri Lanka. It’s a win-win situation for New Delhi, as it rekindles an old friendship while keeping China on its toes.
- India was the first country to respond to Sri Lanka’s desperate need for external assistance to help it deal with its catastrophic debt and economic problems.
- The increasing humanitarian catastrophe afflicting the Sri Lankan people, as well as political pressure from South India, have spurred India to intervene.
- In the first six months of 2022, India provided $3.8 billion in aid to Sri Lanka in the form of loans, swaps, and grants. This is India’s most significant bilateral aid initiative in recent memory.
- Supporting Sri Lanka may be advantageous to India. Stabilizing the Sri Lankan economy might be a huge victory for India’s ‘neighbourhood-first’ agenda.
- Furthermore, as the Sri Lankan economy stabilises, India may expand its economic and investment ties with the country, going beyond the existing humanitarian aid arrangement.
- This has the potential to promote regional integration and prosperity.
- An unstable Sri Lankan economy, on the other hand, might pose security problems to India and result in a flow of refugees across the Palk Strait.
- This is an excellent chance for India to improve bilateral and regional ties.
- Several Sri Lankans, mainly from the Tamil-dominated north, have already sought sanctuary in Tamil Nadu as a result of the economic crisis, and their numbers might grow if the island nation’s economic position worsens.
Chinese Aid Dimensions:
- China has emerged as a key partner for Sri Lanka in recent years, particularly for infrastructure projects, many of which are currently under examination.
- This presents a chance for India to increase its aid and maintain its lead over China by heading an aid consortium for Sri Lanka, in collaboration with other friendly nations such as the United States, Japan, and the European Union, as well as the International Monetary Fund (IMF).
- According to projections, Sri Lanka will need between $20 billion and $25 billion in finance over the next three years to assure crucial imports of food, medicine, and gasoline for its people and to assist stabilise the economy.
- Despite reaping profits from commercial loans for Belt and Road Initiative (BRI) projects in Sri Lanka, which has fuelled a ‘debt trap’ narrative, China confronts a quandary in bailing out the country.
- China is concerned that unilaterally restructuring or deferring Sri Lanka’s debt will create a new precedent in its lending procedures, leading to a line of similarly vulnerable countries requesting debt relief from Beijing.
- Furthermore, China, a G2 country seeking to challenge the United States, does not want its reputation soiled by bailing out a sinking economy.
- Since the beginning of the economic crisis, India has emerged as the island nation’s main lender, offering millions in help and supplying gasoline and food. Meanwhile, China, which has been accused of engaging in “debt trap diplomacy,” has refused to grant Sri Lanka any interest payment relief.
Concerns:
- It is concerning that [during this crisis], radical beliefs may find fertile support.
- The country’s ability to enforce marine security would suffer as well, and
- A scenario of drug and arms smuggling is on the horizon. India must assess how far it can go to assist Sri Lanka; nevertheless, we must keep in mind that economic and security considerations are inextricably intertwined.
Way Forward:
- The focus in India should be on more regionalizing aspects in commerce and if regionalization of the Indian currency can benefit us and our neighbours.
- Concerns arise not only from India, but also from the rest of the region. India must brace itself for problems in the rest of South Asia.
- The regionalization of the Indian rupee should be investigated further. If we regionalize our rupee and allow us to deal in rupees with Sri Lanka, it will help Sri Lanka save on hard currency.
- Our digital interface payments, such as BHIM, may be utilised in neighbouring countries like as Nepal and Bhutan. Those conversations with Sri Lanka were unable to proceed.
- There are five major issues on the agenda of the new administration-
- The government must demonstrate its commitment to economic stability by finalising discussions on an IMF programme that would boost taxes and utility prices to increase revenue and interest rates to control inflation while maintaining social welfare spending to safeguard the poor.
- It must adopt structural changes to open up the economy to trade and investment and to allow market forces to decide resource allocation. This includes lowering trade and investment obstacles, decreasing red tape that stifles industry, and privatising loss-making state-owned firms like Sri Lankan Airlines and the Ceylon Petroleum Corporation.
- It must develop national support for adopting the IMF programme and reforms by demonstrating that this is the only way out of the crisis.
- It must re-establish the rule of law and implement strict anti-corruption policies (including asset declarations for all parliamentarians and a strong anticorruption office supported by the United Nations).
- The executive presidency should be eliminated later. It must shift foreign policy away from the Rajapaksas’ pro-China posture and toward a more neutral position.
- Sri Lanka has a fighting chance of attaining economic normality over the next three years if political will and the correct policies are put in place. India stands to benefit from assisting Sri Lanka in its hour of need. A friend in need is a friend indeed.
