Even a cursory look at Sri Lanka’s economic woes will be an eye opener for any nation in South Asia that thinks China’s Belt and Road Initiative, heavy loans and economic profligacy can catapult it to prosperity. Sri Lanka’s economic woes are a step-by-step guide on how to invite bankruptcy and economic doom.
A combination of several factors has led the island nation into a situation of hopelessness and possibly a constitutional crisis. The political situation in Sri Lanka could turn violent any time if day-to-day miseries keep rising, impacting its neighbours, especially India. New Delhi has acted with remarkable speed and cautious alacrity to rescue the strategically positioned neighbour in the Indian Ocean.
For a country that is heavily dependent on imports of energy supplies, food grains, essential commodities and medicines, a foreign reserve of just $2.31 billion is a nightmare. President Gotabaya Rajapaksa’s admission that his country has a trade deficit of $10 billion does not help ease the situation in any way.
As an astute politician who is believed to be a key strategist against Colombo’s fight against the LTTE a decade and a half back, he and his brothers should have known what they were inheriting from their predecessors. The tax cut bonanza introduced in 2019 did not yield expected results; rather resulted in revenue loss.
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No end to Sri Lanka’s woes
Sri Lanka could have emulated the Narendra Modi government’s model of supporting local manufacturing, self-reliance, adopting zero tolerance for corruption policies and cutting down state expenditure. Additionally, the Rajapaksa government could have shelved some of the China-funded infrastructure projects, which were high on debt servicing and low on revenue earnings, increased agriculture production instead of experimenting with organic food by banning chemical fertilisers and revived the tourism industry which took two massive hits of Easter bombings and the Covid-19 pandemic.
The economic woes have resulted in shortage of medical consumables, which form a substantial part of import in Sri Lanka’s medical infrastructure. Although the country can boast of a robust indigenous medicinal system akin to India’s ayurveda, it does not have adequate production facilities for modern medicines and medical essentials. Sri Lanka should seriously consider inviting Indian pharmaceutical majors to set up production facilities and relax rules for investment and setting up greenfield industries.
India’s robust private sector should rise to the occasion and assist Sri Lanka in becoming not only self-sufficient in medical essentials but also an exporter at some stage.
External Affairs Minister S. Jaishankar has voiced his concern over postponement of surgeries in some of the Sri Lankan hospitals due to shortage of drugs and consumables. New Delhi should consider issuing medical visas for serious patients on priority basis.
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A crisis in India’s neighbourhood
Food shortage is another issue that can trigger widespread discontentment and spill over onto the streets. A situation of anarchy will neither help Colombo nor New Delhi. The collapse of the constitutional machinery and rule of law will invite anti-social elements who could play into the hands of powers inimical to India’s security interests in the Indian Ocean.
As a result of the economic crisis there could be an exodus of people to nearby Indian shores in the south. At least 16 refugees were reported to have landed in Tamil Nadu. This trickle could grow into a flood of refugees who will have to be accommodated on humanitarian grounds. This in turn will have serious financial implications on Tamil Nadu, which in turn will pass on the burden to the Union government. Besides, such an influx will add to the nearly a lakh of displaced Sri Lankan Tamils already staying in camps in Tamil Nadu.
Also, the refugee situation could turn serious if the LTTE sleeper cells get embedded with them and revive their nefarious activities on Indian soil. The National Investigation Agency (NIA) recently booked five persons with LTTE links who were also suspected to be funding the LTTE sleeper cells.
In response to New Delhi’s “Neighbourhood First” policy, Colombo responded with “India First” policy. A friendly Sri Lanka will be in a better position to address India’s security concerns in the Indian Ocean. Besides, Sri Lanka is halfway between the two main choke points, Suez Canal and Strait of Malacca, and is the main route for tonnes of cargo traversing through the narrow sea lanes in the Indian Ocean.
Port of Colombo offers the least deviation hours, eight hours compared to hundred hours of Chittagong and thirty-one hours of JNPT, thus resulting in huge cost cutting. New Delhi has every reason to bail Colombo out of the present crisis, keep the port construction activities in Colombo and the tank project in Trincomalee going and take a long-term view of gaining a strong foothold in the strategic geography.
The author is the former editor of ‘Organiser’. He tweets @seshadrichari. Views are personal.
(Edited by Prashant)