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Source: The post economic relations between India and Sri Lanka has been created based on the article “Bridge this deficit between India and Sri Lanka” published in The Hindu on 9th December 2023.
UPSC Syllabus Topic: GS Paper 2- International relation- India and its neighborhood- relations.
News: The article discusses Sri Lanka’s efforts to strengthen economic ties with India. It covers projects like a land bridge, connecting electricity grids, and trade agreements. Progress in these areas has been slow, but recent developments in tourism, energy, and dairy cooperation show improvement. The goal is to enhance mutual economic benefits and move beyond past challenges.
About India-Sri Lanka economic relation
India is a key export destination for Sri Lanka, ranking third after the US and UK.
Indian FDI in Sri Lanka reached USD 1.7 billion (2005-2019), showing strong investment ties.
In 2022, Indian tourists topped Sri Lanka’s visitor list, emphasizing cultural and economic connections.
The countries are developing a multi-product petroleum pipeline, enhancing energy cooperation.
During Sri Lanka’s unprecedented economic crisis, India provided approximately USD 4 billion in aid.
India has also been actively involved in supporting Sri Lanka in restructuring its debt, collaborating with the International Monetary Fund (IMF) and other creditors.
What efforts have been made to strengthen economic relations between India and Sri Lanka?
Land Connectivity Proposal: Sri Lanka proposed a bridge linking Rameswaram, India, and Talaimanar, Sri Lanka, an idea first suggested 20 years ago.
Energy Cooperation: there are attempts since the 1970s to link electricity networks, though progress is slow compared to India’s successful power exports to Bangladesh.
Recent Collaborative Initiatives: Resumption of air services between Chennai and Jaffna, new ferry services, and a dairy sector joint venture, all aiming to bolster economic relations.
Note: Apart from these, both nations also signed several MoUs, including a collaboration in renewable energy, Network to Network Agreement between NPCI International Payments Limited and Lanka Pay to promote the Unified Payments Interface application in Sri Lanka. Additionally, an energy permit was granted for the Sampur Solar Power Project, which aims to produce 100 MW of power for Sri Lanka.
What are the challenges in the India-Sri Lanka relationship?
Opposition to Land Connectivity: Proposed bridge linking Rameswaram, India, and Talaimanar, Sri Lanka, faced opposition from Sinhalese-Buddhist groups, leading to stalling of the project.
Energy Project Delays: Despite a MoU signed over 13 years ago for an electricity grid connection, there’s been no progress, unlike India’s successful power exports to Bangladesh.
Delayed Trade Agreements: The India-Sri Lanka Free Trade Agreement, signed in 1998, hasn’t progressed significantly, with protracted negotiations on an upgraded economic and technology cooperation agreement.
Lagging Trade Performance: Despite India being the largest source of imports for Sri Lanka, accounting for 26% of total imports, the trade performance is underwhelming compared to trade with other regional countries.
What should be done?
Prioritize Energy Grid Connection: Emulate India’s success in exporting 7,000 million units of electricity to Bangladesh to expedite the India-Sri Lanka electricity grid project.
Enhance Trade Agreements: Renew efforts on the India-Sri Lanka Free Trade Agreement, taking lessons from India’s $18.14 billion trade with Bangladesh, compared to the $5.45 billion with Sri Lanka.
Utilize Tourism Potential: Build on the fact that 17% of Sri Lanka’s tourists are from India to strengthen economic relations further.
For more information on India-Sri Lanka relationship read here
Question for practice:
Discuss the challenges and potential solutions for improving the India-Sri Lanka economic relationship.
