President Gotabaya Rajapaksa declared a state of Emergency in Sri Lanka after the public resentment due to a sharp economic downturn.

Economic crisis in Sri Lanka

• War time effects– During the period of the war, budget deficits were high.
• The capital flight that accompanied the global financial crisis of 2008 drained Sri Lanka’s foreign exchange reserves.
• The IMF loan in 2009 was obtained with the conditionality that budget deficits would be reduced to 5% of the GDP by 2011.
• Post war growth– Sri Lanka’s post-war GDP growth was reasonably high at 8-9% per annum between 2009 and 2012.
• The economy was on a downward spiral after 2013 as global commodity prices fell, exports slowed down and imports rose.
• The government approached the IMF in 2016 for another 1.5 billion dollar loan with conditionality for a three-year period between 2016 and 2019.
• The IMF package led to a deterioration of Sri Lanka’s economic health where GDP growth rates shrank to 2.9% in 2019.
• Investment rate and savings rate fell, government revenues shrank and government debts rose.
• New shocks

• • The Easter Sunday bombings of 2019 deterred tourists
  • The pandemic since early 2020 drained the economy
  • The government’s tax revenue was cut substantially
  • The “organic only” agricultural policy (chemical fertiliser ban has been rolled back) impacted the food security
• The current Sri Lankan economic crisis, then, is the product of
  • the historical imbalances in the economic structure
  • the IMF’s loan-related conditionalities
  • misguided policies of authoritarian rulers and
  • the official embrace of pseudo-science

Brief background of India-SL relations

• India is the only neighbor of Sri Lanka, separated by the Palk Strait; both nations occupy a strategic position in South Asia and have sought to build a common security umbrella in the Indian Ocean.
• There are deep racial and cultural links between the two countries. Both share a maritime border.
• The India- SL relations have been however tested by the Sri Lankan Civil War and by the controversy of Indian intervention during the war.
• In recent years Sri Lanka has moved closer to China, especially in terms of naval agreements.
• India has signed a nuclear energy deal to improve relations and made a nuclear energy pact with Sri Lanka in 2015.

India’s role in the Lankan Civil War

• In the 1970s–1980s, the RAW and the state government of Tamil Nadu were believed to be encouraging the funding and training for the Liberation Tigers of Tamil Eelam (LTTE), a separatist insurgent force.
• In 1987, faced with growing anger amongst its own Tamils, and a flood of refugees India intervened directly in the conflict for the first time.
• This was after the Sri Lankan government attempted to regain control of the northern Jaffna region by means of an economic blockade and military assaults; India supplied food and medicine by air and sea.

India intervention

• Indian intervention in Sri Lankan civil war became inevitable as that civil war threatened India’s unity, national interest and territorial integrity.

Outcomes

• The peace accord assigned a certain degree of regional autonomy in the Tamil areas with a body controlling the regional council and called for the Tamil militant groups to lay down their arms.
• Further India was to send a peacekeeping force, named the IPKF to Sri Lanka to enforce the disarmament and to watch over the regional council.
• The accord failed over the issue of representations. The result was that the LTTE now found itself engaged in military conflict with the Indian Army.
• Areas of cooperation
• India and Sri Lanka enjoy a vibrant and growing economic and commercial partnership, which has witnessed considerable expansion over the years.
• India and Sri Lanka are member nations of several regional and multilateral organizations such as the South Asian Association for Regional Cooperation (SAARC), South Asia Co-operative Environment Programme, South Asian Economic Unionand BIMSTEC.
• India is Sri Lanka’sthird largest export destination, after the US and UK.
• India-Sri Lanka Free Trade Agreement (ISFTA):More than 60% of Sri Lanka’s exports enjoy the benefits of the agreement, which came into effect in March 2000.
• Sri Lanka remains among the largest trade partners of India in the SAARC.

Development co-operation

• Line of Credit:India is active in a number of areas of development activity in Sri Lanka. About one-sixth of the total development credit granted by India is made available to Sri Lanka.
• Development Partnership: India’s development partnership with Colombohas always been demand-driven, with projects covering social infrastructure like education, health, housing, access to clean water and sanitation, besides industrial development.
• Concessional financing of about $2 billion has been provided to Sri Lanka through various Indian government-supported Lines of Credit across sectors for railway connectivity, infrastructure, etc.
• Foreign direct investment (FDI)from India amounted to around $ 1.7 billion over the years from 2005 to 2019.
• Fishing Sector:Projects for providing fishing equipment to the fishermen in the East of Sri Lanka and solar energy aided computer education in 25 rural schools in Eastern Sri Lanka are under consideration.
• Healthcare:India has supplied medical equipment to hospitals at Hambantota and Point Pedro, supplied 4 state-of-the-art ambulances to the Central Province etc.
• Tourism:Indian governments have also showed interest in collaborating with their Sri Lankan counterparts on building tourism between the two countries based on shared religious heritage.
• India and Sri Lanka conducts one of the largest joint Military exercises called ‘Mitra Shakti’. Both conducts joint naval exercise called ‘SLINEX’.
• India is the largest provider of defense training program to Sri Lankan soldiers and Defence officials
• India, Sri Lanka, and Maldives have signed trilateral maritime security cooperation in the Indian Ocean region.
• The cooperation aims at improving surveillance, anti-piracy operations and reducing maritime pollution

Cultural relations

• India and Sri Lanka have a shared legacy of historical, cultural, religious, spiritual and linguistic ties that is more than 2,500 years old.
• In contemporary times, the Cultural Cooperation Agreementsigned between the two governments forms the basis for periodic Cultural Exchange Programmes between the two countries.

People-to-people ties

• Buddhismis one of the strongest pillars connecting the two nations and civilizations from the time of Great Indian Emperor Ashoka who sent his children Arhat Mahinda and Sangamitta to spread the teachings of Lord Buddha at the request of King Devanampiya Tissa of Sri Lanka.
• India in 2020, announced USD 15 million grant assistance for protection and promotion of Buddhist ties between India and Sri Lanka.
• It may be utilized for construction/renovation of Buddhist monasteries, education of young monks, strengthening engagement of Buddhist scholars and clergy, development of Buddhist heritage museums, etc.

Plummeting relations

• The ties began to worsen between the two since February, 2021 when Sri Lanka backed out from a tripartite partnership with India and Japan for its East Container Terminal Project at the Colombo Port, citing domestic issues.
• However, later, the West Coast Terminal was offered under a public private partnership arrangement to Adani Ports and Special Economic Zones Ltd.
• Sri Lanka in a state of economic emergency:Sri Lanka is running out of foreign exchange reserves for essential imports like food. It has recently declared a state of economic emergency.

Major outstanding issues

Fishing disputes

• There have been several alleged incidents of Sri Lankan Navy personnel firing on Indian fishermen fishing in the Palk Strait, where India and Sri Lanka are only separated by 12 nautical miles.
• The issue started because of Indian fishermen having used mechanized trawlers, which deprived the Sri Lankan fishermen (including Tamils) of their catch and damaged their fishing boats.

Kachchativu island

• It is an uninhabited island that India ceded to Sri Lanka in 1974 based on a conditional agreement called “Kachchativu island pact”.
• Later on, Sri Lanka declared Katchatheevu, a sacred land given the presence of a Catholic shrine.
• But Tamil Nadu claimed that Katchatheevu falls under the Indian Territory and Tamil fishermen have traditionally believed that it belongs to them and therefore want to preserve the right to fish there.

China factor

In the period of low profile relationship between the two nations, Sri Lanka apparently started favoring China over India.