Sri Lanka economic crisis: A diplomatic opportunity for India
The Sri Lankan crisis provides a stage for a nimble response from India that would not only bring immediate stability to our neighbourhood but also win the hearts of the Sri Lankan people. Prakash Chawla explains why.
FollowSri Lanka's population of 22 million may just be about the size of a single metropolitan city in India, but the island nation -- with a sizable number of Tamilians -- is of paramount strategic importance in the Indian Ocean.
As the economic crisis has expanded into a full-fledged political challenge for President Gotabaya Rajapaksa, India needs to act faster than any other country to help its maritime neighbour restore order.
India's External Affairs Minister S Jaishankar did spend considerable time with Sri Lankan leaders in bilateral meetings during the recent BIMSTEC Summit in Colombo. New Delhi also opened the relief line of credit along with fuel supply by the Indian Oil Corporation through its Lanka IOC subsidiary. As he wrapped up his visit on March 30, Jaishankar underlined a sense of urgency with which India has moved to help its neighbour in the economic crisis.
Explained: Sri Lanka's 'bad economics' an opportunity for India
But the situation since then has turned worse with violent protests against Rajapaksa who has slapped a state of emergency giving unbridled powers to the Army to crack down on protesters. The western nations, including the United States, have conveyed their disapproval of these measures. But India must act in a swift manner and immediately deliver essentials to the Sri Lankan people through the embattled Rajapaksa administration.
Reports suggest that India has already extended support of $2.4 billion since the beginning of 2022 through currency swap by RBI, loan deferment and urgent lines of credit. Colombo has asked for another $1.5 billion for filling up its essential supply of fuel, wheat, milk and other items of daily use which are disappearing fast from the supermarkets.
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Pushed to the wall, the Sri Lankan government is approaching all potential sources for help, including the International Monetary Fund and the Chinese who had been pro-actively involved in the island nation, selling dreams of infrastructure projects which were essentially meant to help Beijing's expansionary ambitions in the Indian Ocean and other strategic naval waters.
The IMF aid, even if pressed hard, cannot come in days and for weeks, and China does not seem too inclined to fish in the Sri Lankan waters, messed up by the post-Covid handling by the government.
All this provides a stage for a nimble response from India that would not only bring immediate stability in our neighbourhood but also win the hearts of Sri Lankan people, including the Sinhalese, hopefully.
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Tamil Nadu Chief Minister M K Stalin's plea to Prime Minister Narendra Modi to permit his state to extend humanitarian help to Sri Lankans can be finetuned with the overall national objective and the package. The Modi government, which is known for smart packaging all its welfare schemes for the domestic constituents, has a chance for a big-banner package for Sri Lanka. This is bound to make an impact in an otherwise troubled geopolitical situation, dominated by the Ukraine-Russia war. But the package should be consolidated into one big number and not be added up in tranches. Moreover, it must have immediate deliverables for the Sri Lankan people, bringing an end to their daily misery.
Is it doable for New Delhi? Why not? A deep dive into the Sri Lankan statistics shows it should not be a big deal for India. It is only after the outbreak of the Covid pandemic that the small nation's dependence on tourism inflows and remittances for hard currency suffered big blows aggravated by highly volatile and heated crude prices which are driving import-dependent countries to desperation.
India is able to absorb the blow thanks to our large foreign exchange reserves exceeding $630 billion. Imagine the plight of a nation like Sri Lanka, which has just about a few billion in forex reserves with competing demands from essential imports and also repayment of old debts, including those from China.
Returning to the moot point of viability of India going big into helping Sri Lanka, the big-banner helping hand or the package can be extended, one by immediate credit line of at least $4-5 billion along with rescheduling of the old debt and two, by working out a Rupee-Sri Lankan Rupee (RSLR) trade arrangement.
Under the RSLR arrangement, Colombo can immediately be shipped more than adequate quantities of wheat and rice (some quantities of rice have already been shipped). In January alone, the forex-starved nation spent $42 million on importing wheat with a 500 per cent increase in the import bill only under this head.
India should ship wheat under the RSLR arrangement which can also be extended to other essential items like medicines. We are placed in a unique position where we are blessed with plenty of wheat stocks and huge pharma export capabilities; let our desperate neighbours take advantage. It would be a real gesture of not a 'Big Brother' but a 'Bada Bhai' (Elder brother) helping the younger ones.
Immense goodwill potential lies underneath that would come in handy to negate the possibility of any internal opposition in Sri Lanka to India seeking a larger share of their strategic infrastructure projects like the one recently won in the power sector.
The Chinese model of investment which was based on its 'Belt and Road Initiative' in roads, ports, railways and pipelines criss-crossing strategic Asian land and water locations does not have popular support.
Yet another concern for the Sri Lanka Central Bank is a complete drying up of foreign inflows for its treasury bonds. The inflows on this account which were close to $600 million in 2019 crashed down to a mere $17 million. The RBI and the Finance Ministry can examine whether we can buy these bonds, though a rating downgrade may be a deterrent.
An infusion of $4-5 billion dollars to bridge the immediate current account balance of payment gap would bring sanity to Sri Lanka; for India, it is not a big deal. And, as they say, there is no such thing as 'free lunch' even for a younger brother, who could then be persuaded to shun the bad company of countries India need not name!
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