The flying visit of a team of top Indian officials headed by Foreign Secretary Vinay Kwatra on Thursday, indicates New Delhi’s wish not only to be the “first responder” to any crisis in the neighborhood but also to be a “constant companion” to troubled neighbors engaged in rebuilding their economies.
That the US is also anxious to help crisis-ridden Sri Lanka is seen in the announcement of a visit by a high-level team from the State and Treasury departments from June 26 to 29.
Indian Official’s Visit
The Indian officials’ flying visit to Colombo helps put bilateral ties on a firm footing by making it a long-term, broad-based one, and a two-way street to give it balance.
The setting is grim and challenging. The economic situation in Sri Lanka has reached a critical stage: The immediate future will be shaped by the IMF’s bailout which is expected at the end of July. And much would depend on the response of the Lankan government and the Lankan polity to the bailout package which is likely to include bitter pills. China’s response to the developments in Sri Lanka is another critical factor and a mysterious one at that. However, it could be safely assumed that Beijing would move to regain ground lost to India, the IMF and the Western world.
Then, India has to contend with the deep-set anti-India sentiment prevailing among the Lankan elite and opinion makers. There are early signs of the revival of anti-Indian sentiments. Not so long ago, the vocal nationalist politician Wimal Weerawansa alleged in a TV interview, that India has plans to acquire the public sector Litro gas company in exchange for supplying cooking gas. Opposition Samagi Jana Balawegaya (SJB) MP S.M.Marikkar alleged in a press conference that the Indian officials came to Colombo to negotiate the takeover of the Kachchativu island. Tamil Nadu Chief Minister M.K.Stalin’s recent call to “retrieve” Kachchativu is the background to this bid to raise a scare. Marikkar also alleged that Prime Minister Ranil Wickremesinghe has a habit of selling national assets to foreign interests.
Philanthropic – Transactional
Be that as it may, one of the ways to consolidate India’s gains in Sri Lanka (made through the US$ 3.5 to US% 4 billion line of credit given since January this year) is to bring in Indian investments through private and public sector development projects. Significantly, this aspect found mention in the official Indian press release on the officials’ visit, though interestingly, it did not find mention in the Sri Lankan press release which talked only of India’s commitment to continue humanitarian supplies to Sri Lanka. The Indian release stated that the two-sides discussed the promotion of Indo-Lankan “investment partnership” in various fields such as infrastructure, connectivity and renewable energy.
Thus, India’s assistance is at once philanthropic and transactional. In March this year, a MoU was signed on setting up the Trincomalee Power Company in Eastern Sri Lanka. Indian tycoon Gautam Adani got a US$ 500 million renewable energy project in North Sri Lanka. Earlier, Adani had bagged the US$ 650 million project to build the West Container Terminal in Colombo port.
In May, MOUs were signed on setting up a Maritime Rescue Coordination Center; the implementation of Hybrid Power Projects in three islands off Jaffna; and the development of fisheries harbors in Sri Lanka.
In 2017 a number of MOUs were signed but these had remained unimplemented causing displeasure and anxiety in the minds of the Indian leadership. However, that ambitious list is unlikely to be revived now given the economic uncertainties in Sri Lanka.
For the bilateral relationship to be smooth, it is important for the Sri Lankan government to correct the notion that Sri Lankans are partial to Chinese project proposals and hostile to India’s proposals. Adverse reactions to Adani’s US$ 500 million renewable energy project in North Sri Lanka have infused some concern into the relationship. The Adani group officially stated that it was “disappointed” over the controversy as all matters had been settled between the parties concerned.
Cashing in on its geographical proximity, driven by a forward looking neighborhood policy and motivated by philanthropy, India has widened its footprint in Sri Lanka vis-à-vis China after a decade of being on the sidelines. But will China be an idle bystander for long, watching Sri Lanka being snatched away from its hands?
China’s stakes in Sri Lanka being high, it cannot be expected to remain inactive. According to a Chatham House study cited by Dr. Ganeshan Wignaraja, the cumulative value of Chinese infrastructure investment in Sri Lanka under the BRI was US$ 12.1 billion between 2006 and July 2019. Economist Umesh Moramudali says that in terms of Public and Publicly Guaranteed Debt (PPG), China accounted for 19.9% of Sri Lanka’s foreign debt in 2021. He also points out that of the US$ 26 billion repayment which Sri Lanka defaulted this year, dues to China were US$ 7 billion.
Unlike India, which rushed help (after obtaining assurances about some economic and security-related projects) China was unmoved. It set tough conditions for help. It wanted Colombo to put its economic house in order first; agree to debt refinancing instead of seeking rescheduling of repayment; finalize and sign the long-pending Sino-Lankan Free Trade Agreement, and above all, distance itself from India, the West and the IMF. A tall order given Sri Lanka’s conservatism.
China has been repeatedly telling Sri Lanka to encourage FDI instead of borrowing. More importantly, the Chinese, from President Xi down to Foreign Ministry spokespersons, have been asking Sri Lanka to be “independent” (independent of India and the West presumably), a virtually impossible condition to fulfil. Sri Lanka has had no option but to turn to India, the West and the IMF.
However, Prime Minister Wickremesinghe is hoping to form an India-China-West consortium to devise a recovery plan for Sri Lanka. But India and China are unlikely to be part of the same team given their competing interests in Sri Lanka.
Of late, China has been making some efforts to ingratiate itself with Sri Lanka with small aid packages. But its package of US$ 76 million pales into insignificance compared to India’s US$ 3.5 billion (or US$ 4 billion according to Wickremesinghe’s statement in parliament). Recently, Beijing has assured some rice supplies.
US Team Arriving
Meanwhile the US has said that a high-level delegation representing the Department of the Treasury and the Department of State will be in Sri Lanka from June 26 – 29 to discuss US aid. Robert Kaproth, Deputy Assistant Secretary of Treasury for Asia, and Ambassador Kelly Keiderling, Deputy Assistant Secretary of State for South and Central Asia will meet a wide range of political representatives, economists, and international organizations “to explore the most effective ways for the US to support Sri Lankans in need” and to help build a sustainable and inclusive economy for the future.
“This visit underscores our ongoing commitment to the security and prosperity of the Sri Lankan people,” said U.S. Ambassador to Sri Lanka, Julie Chung. “As Sri Lankans endure some of the greatest economic challenges in their history, our efforts to support economic growth and strengthen democratic institutions have never been more critical,” a US embassy release quoted her as saying.
Over the past two weeks, the US has announced $120 million in new financing for Sri Lankan small and medium-sized businesses, a $27 million contribution to Sri Lanka’s dairy industry and $5.75 million in humanitarian assistance to help those hit hardest by the economic crisis.
The United States also committed $6 million in new grants to provide livelihood assistance to vulnerable populations, and technical assistance on financial reform that will help stabilize the economy.
In the coming months, the U.S. will continue to support Sri Lankans as they revive their economy, combat food insecurity, and promote public health and education. The United States also strongly supports Sri Lanka’s decision to seek assistance from the International Monetary Fund, which can provide the most durable resolution to the present crisis, the embassy release said.