President Ranil Wickremesinghe in Delhi: Sri Lanka and India, five things to do

Source: This post is based on the article “President Ranil Wickremesinghe in Delhi: Sri Lanka and India, five things to do” published in Indian Express on 20^th July.

Syllabus Topic: GS Paper 2 – India and its neighborhood

News: Sri Lanka’s President Ranil Wickremesinghe is visiting India to finalize several investments, especially in energy, infrastructure, and tourism.

What are the post crisis developments in India-Sri Lanka Relations?

After Sri Lanka’s sovereign debt default, India’s Neighborhood First policy was evident in its aid to Sri.

India provided $5 billion in economic aid to Sri Lanka during its crisis in 2022, leading to the IMF’s $3 billion programme in March 2023.

Indian government has set an agenda for investing in renewable energy, infrastructure, and tourism in Sri Lanka. Indian companies, including the Adani Group and the Tata Group, are investing in Sri Lanka, according to the government’s aim.

What are the opportunities in the India-Sri Lanka relations?

India’s most significant concern with Sri Lanka is the deep presence of China, whose cumulative investments account for 18 per cent of Sri Lanka’s 2021 GDP and 10.8 per cent of the country’s foreign debt. Keeping Sri Lanka close will help India keep China at its periphery.

A determined Neighbourhood First policy from India will uplift South Asia’s regional attractiveness. Strategically, the bilateral engagement could naturally extend to the Indian Ocean, and beyond it, to the Indo-Pacific.

India’s aid and investments in Sri Lanka can lead to increased trade and the building of a robust South Asian supply chain. South Asian countries have lower hourly wages than China, therefore it can develop export processing zones and industrial clusters supplemented by a good supply chain network.

What more needs to be done?

India and Sri Lanka currently have a give-take relationship, with India providing aid. The goal is to make this relationship reciprocal, turning aid into trade, similar to the India-Japan bilateral relationship. For example, India is still the largest recipient of Japan’s overseas aid, but it is also India’s fifth-largest investor, with a cumulative investment of $38.7 billion.

Currently, Indian aid is routed via multiple ministries and agencies. India can consolidate its fragmented aid program through a single development bank. Talks should be accelerated for a comprehensive and high-quality India-Sri Lanka free trade deal focusing on supply chains and foreign investment.

While India’s digital public infrastructure led by UPI and open-source fintech, is being accepted globally, it has not entered in the south Asian countries. Sri Lanka should try to approach India for adaptation of its digital public infrastructure.

India and Sri Lanka should develop a mechanism for early warnings and methods for economic crisis. For example, ASEAN countries adopted a mutual monitoring mechanism after the Asian Financial Crisis of 1997.