India- a true, reliable friend of Sri Lanka

Contact Counsellor

Last Updated09/02/2022

Sri Lankan Foreign Minister G.L. Peiris recently said that people of Sri Lanka “increasingly recognise” that India is a true friend that Sri Lanka can rely on at all times.
He also thanked India for the $ 2.4 billion assistance at a “critical juncture” for the island nation in the midst of an economic crisis.

Sri Lankan Foreign Minister was on a 2 day visit to India that coincides with India releasing urgent financial assistance to Sri Lanka since the beginning of this year, including a $400 million currency swap, a $500 million loan deferment, a Line of Credit for $500 million for fuel imports and another $ 1 billion currently under negotiation.

The relationship between India and Sri Lanka is over 2,500 years old.
Both countries have, for a long time, shared intellectual, cultural, religious and linguistic relations.
India’s partnership with Colombo has always been demand-driven, with projects covering social infrastructure like education, health, housing, access to clean water and sanitation, besides industrial development.
India’s ‘Neighbourhood First’ policy towards Sri Lanka also resonated with Sri Lanka’s ‘India First’ foreign and security policy in 2020.
But, due to Chinese intervention, the ties between the two countries have plummeted.
However, relations between the 2 countries are now improving as negotiations to provide more financial assistance to the island nation are on.

Economic Ties: India is Sri Lanka’s third largest export destination, after the US and UK. More than 60% of Sri Lanka’s exports enjoy the benefits of the India-Sri Lanka Free Trade Agreement.
Investment: India is also a major investor in Sri Lanka. Foreign Direct Investment (FDI) from India amounted to around $ 1.7 billion over the years from 2005 to 2019.
Strategic relations: India has a vital strategic stake in Sri Lanka as a hostile Sri Lanka would strategically discomfit India. Sri Lanka is also strategically important to India in terms of her Indian Ocean strategy and in terms of networking of partners for her aims of establishing an Indian Ocean Rim Community.
Infrastructure: 11 Lines of credit (LOC) have been extended to Sri Lanka by the Export Import Bank of India in the last 15 years. Important sectors include: Railway, transport, connectivity, defence, solar.
Investment: India is one of the largest contributors to Foreign Direct Investment in Sri Lanka. A number of leading companies from India have invested and established their presence in Sri Lanka. FDI from India amounted to about US$ 1.7 billion during the period 2005 to 2019.

China is the largest bilateral creditor to the country whose loans to the Sri Lankan public sector are about 15% of the central government’s external debt.
China’s exports to Sri Lanka surpassed India exports in 2020($3.8 billion for China whereas $ 3.2 bn for India).
China has invested about $12 billion in Sri Lanka’s Infrastructure projects between 2006-19 and also controls Sri Lanka’s Hambantota port for a 99-year lease period.
Sri Lanka has decided to establish a Special Economic Zone around the Colombo port city and a new economic commission, to be funded by China. The Colombo port handles 60% of India’s trans-shipment cargo.
Leasing of Hambantota and the Colombo Port City project makes it almost certain for the Chinese navy to have a permanent presence in the Indian Ocean which will be worrisome for India’s national security.
Sri Lanka’s economic crisis may further push it to align its policies with Beijing’s interests.

Reaching the lowest point in mid-2021, India has come forward a lot to improve relations.
The need of the hour is that India needs to leverage its soft power diplomacy and try to counter China's debt trap policy in Sri Lanka. Also other contentions regarding fishermen, kachatheevu island controversy etc should be resolved as soon as possible.
Lanka is a strategic partner for India to ensure its maritime security and with China's growing assertiveness in IOR, India needs to maintain cordial ties with Sri Lanka.