Sri Lanka, one of India’s next-door neighbors has sunken into a deep economic and political crisis. As we notice, there is a threatening possibility of a large-scale humanitarian crisis brewing in the country. There is no food, no medicines, and no law & order too and in case of a big crisis, the entire onus will lie on India to help. India will be the middle ground to extend international aid, and this will further put stress on our economy.
“Sri Lanka is a classic twin deficits economy,” said a 2019 Asian Development Bank working paper. Twin deficits indicate that the national expenditure of the country overpasses its national income and the production of its tradable goods and services is meagre. The ongoing crisis was spurred by deep tax cuts assured by Rajapaksa in the midst of an election campaign in 2019, held months prior to the COVID-19 pandemic that further wiped out Sri Lanka’s economy.
The country’s remunerative tourism industry and foreign workers’ compensations were debilitated due to the pandemic. Credit rating agencies proceeded to downgrade Sri Lanka and effectually struck it out of international capital markets. As a consequence, the country’s debt management program, which counted on accessing those markets, plummeted and foreign exchange reserves collapsed by almost 70% in two years.
Now the crisis will, needless to say, have its own impact on India, since India is also one of the largest trading partners of Sri Lanka and one of the top tourism sources. India accounts for 1.3% of the country’s total exports. Sri Lanka has pled for a supplementary $1.5 billion credit limit, in addition to the $1 billion assistance extended by India to ease pay for critical imports. India has also extended a $400 million currency swap and a $500 million credit line for fuel purchases to the island country. Around 40,000 metric tonnes of diesel have also been sent by India to mitigate the spike in power cuts in Sri Lanka. India was one of the biggest sources of foreign direct investment (FDI) in Sri Lanka. Some of the biggest companies in the country have invested in Sri Lanka.
Due to inflation prices of basic essentials, commodities have risen so high that the common man is unable to purchase them. The protests against the existing government grew so violent that it was forced to impose a curfew and later they declared a state of emergency in the country.
With such high levels of inflation, the entire public system of the country came to a standstill. With such an economic situation and with the fact that the Sri Lankan government has asked for a $2.5 billion emergency aid from China, there is a threat that China may gain its influence in the island country. Since Sri Lanka’s location is strategic, India should be vigilant of the Chinese endeavours to influence Sri Lanka.
Although India does not have many imports from Sri Lanka and less than $1 billion USD worth of goods are imported, there is a serious economic threat in terms of handling of Indian Trans-shipments. Sri Lanka is an important Trans-shipment hub that handles nearly 48% of our international cargo. India is catering to nearly 22% of the total GDP of the island country, through trade, tourism, and remittances. These factors will doubtlessly be affected by the current situation in Sri Lanka.
India has earlier witnessed that whenever there is a socio-political crisis in Sri Lanka, a large number of refugees move from the Sinhala Island to India through the Palk Strait and Gulf of Mannar. Thinking straight, the first possible reason is that people belonging to the same Tamil community are associated with each other for centuries, and the second is that after the Sri Lankan Civil war ceased, the confidence of the ethnic Tamil community in the Sri Lankan government weakened. It could prove to be difficult for India to handle such a big inflow of refugees. Enormous refugees have already started moving and India requires the formation of a strong policy to handle this issue. Although by 2009, Sri Lanka affirmed that it got rid of Tamil Rebel groups completely, things are still scorching inside. Tamils have still not received a legitimate representation in the government, and they are neglected the most in the current times. This economic crisis might provide a new life to already redundant rebels who are trying to find a cause to fuel up the issue. Along with Tamil Rebels, there are multiple nonconformist groups amid the ethnic Sinhalese population and we cannot overlook out the probability of them taking up arms during this time of crisis.
India must take every step very carefully in the case of Sri Lanka since, we hold collective social, strategic, as well as economic interests with the country, and we cannot afford to let anyone take advantage of this.
Samreen Khan is a student pursuing English Literature from Jamia Millia Islamia.
Edited by: Maria Aqdas
The opinions expressed in this publication are those of the author. They do not purport to reflect the opinions or views of The Jamia Review or its members.