Editorial: Timely help
Grappling with the worst economic crisis since its independence, Sri Lanka gets a lifeline with India pitching in with a big help and extending a $1bn credit line to buy urgently needed food and medicines. Gestures such as this will generate goodwill for India and help in resetting the bilateral ties that suffered a strain […]
Grappling with the worst economic crisis since its independence, Sri Lanka gets a lifeline with India pitching in with a big help and extending a $1bn credit line to buy urgently needed food and medicines. Gestures such as this will generate goodwill for India and help in resetting the bilateral ties that suffered a strain in the recent past. In January, New Delhi had provided Sri Lanka with financial assistance worth $1.4 billion, of which $500 million was a line of credit towards fuel purchase and $400 million was given as a currency swap under the SAARC facility. In addition, India deferred repayment of a $0.5-billion loan. Hence, India’s total financial assistance to its beleaguered neighbour stands at around $2.4 billion so far this year. Though this is a large amount, it is far from enough to pull the island nation out of the dire financial straits in which it finds itself. Sri Lanka has run up a foreign debt of nearly $7 billion amid growing fears that it will default on its foreign debt. By announcing a liberal financial package, India has consolidated its standing as a reliable friend in times of need. India’s gesture is commendable, given the fact that Colombo has been tilting towards China over the years. In fact, the island nation has become a victim of China’s debt-trap policy. Colombo’s deepening embrace of China should not come in the way of India’s efforts to help the neighbour. The import-dependent island nation’s foreign debt reached 41.3% of the GDP in 2019.
Beijing’s much-hyped Belt and Road Initiative (BRI) also allowed Sri Lanka to borrow commercial loans on infrastructure projects without strict conditionality, thus luring it into massive forex debt. The economy has also been affected due to low receipts from tourism and remittances, the two main sources for foreign exchange that were devastated by the pandemic. Since his return to power over two years ago, Mahinda Rajapaksa has shown a clear tilt towards China and paid scant attention to India’s strategic interests. Sri Lanka plays a pivotal role for India to control the strategic choke points in the Indian Ocean region. However, by pumping in huge investments into infrastructure and port development projects and forcing Colombo into an irreversible strategic embrace, China can have easy access to them. This will have huge security ramifications for India. Over the years, China has become the biggest investor in Sri Lanka, building expressways, ports, power projects and many of such infrastructural needs that it got on lease for 99 years. This has created a debt trap problem for the country, which owes $1.3 billion to China. A financial emergency was declared in August last year. The growing debt problem would certainly impact India’s security interests because it would push Colombo deeper into the Chinese sphere of influence.
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