Table of Contents
The News
Why the Crisis?
- Critics say the roots of the crisis lie in economic mismanagement by successive governments that created and sustained a twin deficit
- Budget shortfall alongside a current account deficit
- Successive governments have failed to diversify exports which rely on Tea, Tourism & Textiles.
- Along with it people have been protesting against the Rajapaksa family which has been the main power centre in last 15 years.
- The immediate cause was Rajapaksa government’s decision to ban all chemical fertilisers in 2021, a move that was later reversed. Add to it faulty debt management programme which reduced the foreign exchange reserves plummeted by almost 70 per cent in last two years.
Crisis an opportunity for India
Crisis an opportunity for India
- As Colombo struggles, an opportunity arises for New Delhi to repair and restore the traditional relationship it had with its island neighbor.
- India-Sri Lanka ties turned frosty during Mahinda Rajapaksa’s presidency (2005-15). The Sri Lankan president used the availability of Chinese credit to buy himself domestic legitimacy and tighten his grip over power.
- Sri Lanka moved into the Chinese orbit as it firmed up a series of agreements with China beginning in 2005, including a $1.35-billion deal to construct the coal-fired Lakvijaya Power Plant in Puttalam, and the controversial Hambantota Port which was eventually leased to Chinese.
- On the other hand, India was snubbed by Sri Lanka repeatedly. For instance, the East Container Terminal (ECT) of the Colombo Port was supposed to be offered to India and Japan, but Sri Lanka backed out.
Crisis an opportunity for India
Crisis an opportunity for India
- By 2020, Sri Lanka did realize the limits of economic and strategic cooperation with China and the predicament in which Sri Lanka was placed.
- SL President Gotabaya Rajapaksa undertook his maiden overseas trip to India in November 2019 and later on a flurry of visits by other Sri Lankan leaders to Delhi have followed.
- In fact by mid 2020, Sri Lanka announced India first foreign policy.
Crisis an opportunity for India
Crisis an opportunity for India
Competition over Sri Lanka
Competition over Sri Lanka
- China has been quick to lend assistance, offering a $1.5 billion line of credit and a $1 billion loan.
- It has also pushed for acceleration of the China-Sri Lanka free trade agreement, which China believes will benefit local Sri Lankan goods.
- Apparently, China also sent 2,000 tons of rice to address food shortages.
Advantage India
- If India wants to loosen China’s grip and restore its traditional influence over Sri Lanka, it must act swiftly.
- India needs to recognize the fragility of the situation. As a state with ethnic ties to Sri Lanka, a worsening of the situation in the island could lead to large-scale movement of Sri Lankan nationals to India.
- India should not look for economic concessions or strap Colombo with additional future debt (Chinese Route). It should instead develop a Marshall Plan for the economically-devastated island.
- India should embrace the spirit of Neighborhood First and restore the image of a traditional partner with Sri Lanka.
Advantage India
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