Sri Lanka’s issues today are because of mismanaged government finances and ill-timed tax cuts. The country was in trouble even before the COVID-19 wave. The foreign exchange reserves fell 70% to around $2.31 billion in the last two years. The Ukraine-Russia war has impacted the tourism sector. Meanwhile, inflation and crude oil price hike has dented the country’s reserves. Anyway, the country is heavily dependent on imports of essential items, and now, the prices have gone so high that hardly anyone can afford them. Like, rice is Rs 300/kg, petrol Rs 330/litre, and milk powder is Rs 1,000/kg.
How Is India Positioned Here?
On March 17, India announced a $1 billion credit line to procure food, medicines and other essential items. In February, it had extended a $500 million line of credit to purchase petroleum products. In fact, a lot of people are escaping their country to enter India illegally because the government has announced a public emergency and people have taken over roads to protest.
How Does This Concern Us?
The primary investments from India are in tourism, manufacturing, real estate, banking etc. Several leading companies have invested and established their presence in Sri Lanka, like Indian Oil, Airtel, Taj Hotels, Dabur, Ashok Leyland etc. These companies will face a setback from the neighbouring country temporarily.
What Lies Ahead?
Any disruption in Colombo port operations makes India vulnerable to increased costs and congestion issues. Meanwhile, the work on the transshipment hub in Kerala has begun. It is in India’s interest to help Sri Lanka come out of the economic crisis in the short term.