Sri Lanka Economic crisis

Contact Counsellor

Sri Lanka Economic crisis

  • India and Sri Lanka agreed to a four-pronged approach to discuss initiatives on food and energy security to help mitigate Sri Lanka’s economic crisis.
  • It was decided on the context of a 2 day visit by Sri Lankan Finance Minister.
  • It was also agreed that modalities to realise thius approach would be finalised early, within a mutually agreed timeline.

Background of economic crisis in Sri Lanka:

  • Sri Lanka declared economic emergency in last week of August this year stating rising food prices, depreciating currency, and depleting forex reserves.
  • Reasons:
  • Tourism industry that contributes to more than 10% of Sri lankan GDP has declined due to pandemic. It has resulted in a huge fall in global forex reserves and depreciation of Sri Lankan currency.
  • As Sri Lanka imports basic food supplies, prices of food items have skyrocketed.
  • Sri Lanka blamed speculators for resulting into rise in food prices by hoarding essential supplies & declared “economic emergency” under the Public Security Ordinance.
  • Now, army has been tasked to seize the food supplies from traders and supply them to consumers at fair prices.
  • Government has also authorized army to ensure that forex reserves are used to purchase the essential goods only.

Four-Pillar Initiative:

  • Lines of credit for food, medicines and fuel purchases granted by India.
  • A currency swap agreement to deal with Sri Lanka's balance of payment issues.
  • An early modernisation project of the Trinco oil farms that India has been pursuing for several years. Trincomalee Harbour is one of the deepest natural harbours in the world developed by the British during World War II. Projects to develop oil infrastructure in Trincomalee have been hanging fire since 2017.
  • A Sri Lankan commitment to facilitate Indian investments in various sectors.

Direct communication

  • India and Sri Lanka agreed to open direct lines of communication and to be in direct and regular contact with each other to coordinate the initiative.

India- Sri Lanka Relations: issues

  • Fishermen issue:

  • Over 280 Indian fishermen were arrested and a total of 53 Indian boats were confiscated by the Sri Lankan authorities in last 2 years.

  • China's Check book diplomacy:

  • China is the largest investor in Sri Lanka, accounting for 23.6% of the total Foreign Direct Investment (FDI) during 2010-2019 as against 10.4% from India.

  • East Coast Terminal project:

  • Sri Lanka cancelled an MoU signed with India and Japan for the East Coast Terminal project this year.

  • India opposed it but later agreed to the West Coast Terminal being developed by the Adani group.

  • 13th Amendment of Sri Lankan Constitution:

  • About devolution of necessary powers to the provincial councils to address the just demand of the Tamil people for equality, justice, peace, and respect within a united Sri Lanka.

  • India and Sri Lanka have shared a common past since centuries including religion, culture, and trade. India is a prominent Asian nation with critical national interests in South Asia, and so it has a special responsibility to ensure peace and stability in its closest neighborhood. India & Sri Lanka both need to support each other to emerge as a Dominating power in the Indian Ocean. Therefore, the two countries should recognize the legitimacy of each other’s concerns and operate in a way which is mutually beneficial.