India and Sri Lanka have strong historical, religious, cultural, and ethnic ties that date back thousands of years. From India’s perspective, its ‘Neighbourhood First’ policy aims to strengthen relations with its immediate neighbours, a significant catalyst in promoting stability, security, economic and cultural benefits within the region. India has also become Sri Lanka’s ‘lender of last resort’ as the latter was facing unprecedented economic crisis and the country even entered sovereign default.
President Ranil Wickremesinghe, while briefing on the Sri Lankan government’s economic reform recently acknowledged India’s continuous support as a neighbouring ally all during the recent economic crisis. To help its neighbour during times of crisis, the Indian government has extended a whopping USD 4 billion in food and financial assistance to Colombo, surpassing China to become Sri Lanka’s top bilateral lender. India also facilitated the expansion of Sri Lanka’s access to Asian Clearing Union (ACU) trade liabilities to be settled in arrears, allowing USD 2 billion in trade credit amidst the crisis.
Sri Lankan Foreign Minister Ali Sabry lauded India, saying “No exaggeration to say that due to enormous support from India amounting to USD 4 billion worth of credit line for import of essentials, we were able to regain some measure of financial stability.” It has also provided assurances to the International Monetary Fund (IMF) to help the island country with economic recovery ahead of a crucial USD 3 billion package from the IMF.
In fact, Indian External Affairs Minister, S Jaishankar admitted, “…we have actually stepped forward in a way in which we ourselves never have before. What we have done for Sri Lanka is bigger than what the IMF has done for Sri Lanka”.
Subsequently, India has rolled over USD 1 billion credit line for Sri Lanka by one year, releasing the immediate pressure on foreign exchange. The credit line was part of the USD 4 billion emergency assistance by India to the crisis hit island nation and was scheduled to end in March this year.
While Colombo was facing fertiliser scarcity in 2022 amidst of economic crisis, India extended support by supplying 65,000 MT of urea under the existing USD 1 billion Indian line of credit.
Colombo was hoping for some support from both India and China in the face of its mounting economic and financial crisis. With no immediate support from China, the magnitude of Indian support was timely and well appreciated by all Sri Lankans. Sri Lanka is currently looking for debt restructuring plan which is part of the IMF bailout package. It has total debt of USD 83 billion, of which nearly half (USD 41.5 billion) is foreign.
India – Sri Lanka cooperation is extended to other areas as well. Notably, India is assisting Sri Lanka in improving its energy infrastructure. Renewable energy projects are also being prioritised in Sri Lanka due to the enormous potential for sustainable production and revenue generation. It also reduces Sri Lankan dependence on imported fossil fuel. The World Bank stated that Sri Lanka can gain a myriad of benefits from twinning floating solar and hydropower to add estimated 11,000 MW to its power grid in the next two decades. In 2021, India extended the island nation a USD 100 million line of credit for various solar energy projects, which are expected to power government institutions and religious sites.
Moreover, India-based Adani Group plans to build 2 wind power projects worth USD 500 million in the northwest region of Mannar. India’s state-run NTPC is also working on a 100 MW solar power plant in Sampur (Trincomalee).
While scripting its recovery path, Sri Lanka has underscored the importance of Indian tourists and investment in its economy. Sri Lanka’s willingness to accept India support is likely to favour it in more ways than one and help to regain its place in the global economy. By nurturing strong bilateral ties, both countries can enhance regional stability, promote economic cooperation, and address common challenges effectively.