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How Indian aid keeps China at bay in Sri Lanka

Updated: Feb 8, 2023

India's 'neighbourhood first' policy towards Sri Lanka will play a pivotal role in strengthening the bilateral relationship between the two countries.

India's Minister of External Affairs S Jaishankar with the Sri Lankan President Ranil Wickramsinghe

On a recent visit to Sri Lanka, India’s Minister of External Affairs S. Jaishankar extended a strong practical support to the country’s grave economic situation by backing the debt restructuring program. This would be a very welcome development for Sri lanka because in order to obtain a viable IMF bailout package of $2.9 billion, the country needs financial assurances from its major creditors that includes India, China and Japan. India became the first creditor to do so. India’s letter to the IMF stating the support to Sri Lanka’s debt restructuring program further materializes this support for the efforts to get the country out of the grips of this long standing economic crisis.

India’s financial assurance is very crucial to Sri Lanka in further approaching the other lenders to follow suit. The other big lender in the spotlight, China, is yet to make any formal commitment towards financial assurances to Sri Lanka.

Reclaiming the sphere of influence

Jaishanka’s visit to Sri Lanka was not just a show of neighbourhood camaraderie but also a very well thought out strategic step towards countering China’s inroads to Sri Lanka. It was only last year that India and Sri Lanka signed Memorandum of Understandings (MoUs) for setting up hybrid power projects in Northern Sri Lanka to replace the Chinese ventures in the region. This was regarded as a major win for India over China considering China’s aggressive policies for influencing India’s immediate neighbourhood and hampering India's ‘sphere of influence’ in the South Asian region.

This momentum is further propelled by the foreign minister’s claims of support towards extended Indian investments in Sri Lanka. The long term economic benefits of this partnership could only be reaped through proactive investments and bilateral business cooperation and should not be limited to lines of credits, debts and loans. The crucial sectors of energy, tourism and infrastructure were identified by India to increase investments and collaborate with Sri Lanka towards building a strong and effective economic partnership. Over the last year, India has been contributing extensively to Sri Lanka’s tourism industry as the major chunk of the tourist footfalls in Sri Lanka came from India.

Sri Lanka has, in the past, allowed for the mechanism of Unified Payments Interface (UIP) and payments through RUPay cards for Indian tourists in order to lure in more tourists from India as the country remains an important contributor to Sri Lanka’s tourism industry. This was further reiterated and encouraged by Jaishankar in his address to Sri Lanka as he urged the Indian tourists to continue payments using the Indian digital payments infrastructure.

The next major focus is on the energy sector. With the collapsing Sri Lankan economy, the country has been facing a huge energy security crisis. This was also the first time that India expressed an interest in the extreme potential that lies in Sri Lanka’s renewable energy resources. This allows for India to become the first country to tap into the renewable energy sector of Sri Lanka and create a space for an important bilateral partnership in this regard. It is also significant from an Indian point of view as the country is aiming to develop bilateral and multilateral cooperation mechanisms towards building renewable energy transitional technologies and also investing in critical minerals with important states. Sri Lanka can play a significant role in this sector, especially in the case of renewable energy and this would be beneficial for the steady economic partnership that the country desperately needs at this point.

13th Amendment and the Tamil question

In a subject very critical to Sri Lanka’s internal political situation, Jaishankar also urged the Sri Lankan government to complete the implementation of the 13th Amendment of the National Constitution. The amendment was a result of the Indo-Sri Lanka Accords of 1987 that aimed to address the problem of Tamil identity in the country and resolve the long standing dispute with the Liberation of Tamil Tigers’ Eelam (LTTE).

As per the amendment, a power sharing arrangement was to be developed that gave all the nine provinces of the country the right to self govern on matters of policy regarding education, health, housing, land, agriculture and the policy infrastructure. These policies have not been implemented as the provincial administration is yet to have control over the sectors of land and police.

As an important bilateral partner of Sri Lanka, India also has a stake in the internal security situation of the country as the security of the Indian origin Tamils in Sri Lanka becomes an imperative issue for India too. This was further reiterated by Jaishankar as he called for the Sri Lankan government to also adhere to the security issues of the Indian origin Tamils in Sri Lanka and this would further strengthen the cultural ties between the two countries.

Countering the China threat

This visit to Sri Lanka holds a lot of significance for both the countries involved. For Sri Lanka, the assurance provided by India would help make its case for a favourable IMF bailout package deal. However, the importance does not just stop here, India’s assurances to collaborate towards economic investments and tourism would have long standing benefits for Sri Lanka considering that India is already aiming at creating new avenues in the renewable energy sector.

For India as well, creating a strong footprint of influence in Sri Lanka is important now more than ever because of the aggressive Chinese policies. China’s belt and road initiative and its debt trap strategy has already pushed Sri Lanka to the brink. The story of the Hambantota port is an important case in point to show how China has succeeded in exploiting the country in the garb of infrastructural investment. However, amidst all of this the extending influence of China in Pakistan makes it all the more important for India to keep creating a stronghold down south in Sri Lanka. It can be viably argued that India has remained somewhat successful in this endeavour as it already grabbed the hybrid power projects from the hands of the Chinese.

The increasing engagement in terms of energy, security and tourism would further add to the bilateral cooperation and is also likely to play an important role in getting Sri Lanka out of deep waters. It is still important to note that a lot of critical financial planning is needed at the macroeconomic level in the long run. It may be important for India to reduce the Chinese presence in Sri Lanka but for Sri Lanka, the Chinese financial assurance is still very crucial to obtain the IMF bailout package. How the country would play between these two giant economic influences is for us to see in the time to come.

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