The economic, social, and geopolitical consequences of Sri Lanka’s economic crisis are examined as it worsens, spilling over into civil unrest and political instability. When it comes to interactions with Sri Lanka, India’s geopolitical power in the area is in jeopardy, and the appropriate diplomatic approach is crucial.
Foreign currency depletion and the inability to pay for basic imports like petrol have worsened the economic situation in neighboring Sri Lanka over the last several months. The situation in Sri Lanka is worrying, with crippling power interruptions lasting up to 13 hours, shortages of food, petroleum products, vital supplies, and a surging double-digit inflation rate of 17.5 percent.
India, Sri Lanka’s sole direct neighbor, is dancing a tightrope as it grapples with the problems and possibilities that this crisis in Sri Lanka has created.
What was the trigger for the crisis in Sri Lanka?
The crisis in Sri Lanka was largely precipitated owing to a shortfall of foreign currency (forex) reserves, which had plunged by 70 percent over the previous two years to barely US$2 billion by the end of February 2022. The remaining FX reserves can hardly cover two months of imports. Meanwhile, the nation faces foreign debt commitments of around US$7 billion in 2022.
The FX issue has been exacerbated by a number of causes. Since the Easter Sunday suicide attacks of 2019, Sri Lanka’s tourism sector has collapsed, resulting in a 70% decline in visitor arrivals. Travel restrictions imposed as a result of the epidemic compounded the problem. Additionally, during the epidemic, remittances from overseas employees, which is Sri Lanka’s main source of US dollars, dropped by 22.7 percent to US$5.5 billion in 2021.
Because of the country’s reliance on imports for basic necessities including sugar, medicines, petroleum, pulses, and grains, consumption habits have also been substantially influenced. Coupled with a succession of disastrous policy choices like the restriction on artificial fertilizers led to a significant drop in domestic food output, driving up food costs by 25 percent.
Is India feeling the effects of Sri Lanka’s civil war?
Sri Lanka’s economic turmoil has a direct influence on India. Indian People fleeing the island country for safety are fleeing poverty and job loss.
Challenges in the economy
The Port of Colombo’s role as a transshipment center means that India is heavily reliant on it for international commerce. The port handles 60% of India’s transshipment goods. Of the overall transshipment volume, 70% comes from freight with an Indian connection.
In Sri Lanka, thousands of containers, both for domestic use and transshipment, are now stranded in the port because officials cannot afford to move them between terminals. As a result, cargo bound for Sri Lanka has amassed at Indian ports. The Port of Colombo’s operations might be disrupted, resulting in an increase in expenses and congestion in India. India wants to assist Sri Lanka out of its current economic crisis as soon as possible, which is why construction on a transshipment center has already started in Kerala.
Crisis in the field of humanitarianism
In the event of a large-scale humanitarian disaster in Sri Lanka, India is the sole neighbor. Because of the scarcity of food and medication, as well as the developing political unrest, India is in a position of great responsibility to help prevent the disaster.
The plight of refugees
In times of political or social upheaval in Sri Lanka, the Palk Strait and the Gulf of Munnar have seen a considerable number of ethnic Tamil minority refugees fleeing to India from Sinhala Land. India, on the other hand, maybe unable to deal with such a large migration and would need a comprehensive program to deal with the situation.
Since Sri Lanka abruptly halted tea supplies to the global market, India is eager to fill the supply shortages. The world’s top tea exporter, Sri Lanka, has seen its tea output plummet as a result of daily power outages of 12–14 hours. India’s tea exporters are in a strong position to take advantage of the orthodox tea market in other nations. India has the potential to expand its market share in Iran, Turkey, Iraq, the United States, China, and Canada.