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Sri Lanka is currently encountering one of the most severe economic and political crises. Sri Lanka's economic crisis has attracted the attention of many international leaders and become the most hyped topic of discussion across numerous global platforms. With markets being shut, inflation is at an all-time high and protests are escalating with the demonstrators staying rebellious about the present political stalwarts of Sri Lanka. As President Gotabaya Rajapaksa escaped the country and went to the Maldives on the day of his resignation, there is a state of emergency in Sri Lanka right now. If we take a look at the Sri Lanka crisis today, there is no possible way out for Sri Lanka to escape this economic turbulence without any external help. While China has forsaken the island nation, India has come forward to provide financial help to crisis-torn Sri Lanka along with medicines, fuel, and food through a line of credit. Factors like the pandemic, international loans and carefree expenditure of public funds are some of the major reasons behind the free fall of the Sri Lankan economy. Inflation currently stands at more than 21 percent today in Sri Lanka because of its fast-declining economy, and because of this, power cuts and scarcity of essential items like food, fuel, and life-saving medicines have been grave in recent months. With an external debt of more than $50 billion, Sri Lanka’s forex reserves stand at just over $2 billion.
Being neighbors, India cannot remain unaffected due to the ongoing crisis across Sri Lanka. This article focuses on some of the exclusive angles through which the Sri Lankan crisis can affect the Indian economy and the intensity of that impact.
Impact over India
India is having some significant investments across Sri Lanka in the areas related to real estate, petroleum refining, manufacturing, and so on. These investments might be adversely affected if the ongoing Sri Lankan crisis lingers on for a longer period. In the meantime, Sri Lanka’s share in India’s total exports has deteriorated from 2.16 percent in FY15 to just 1.3 percent in the first 10 months of FY22. India’s export to Sri Lanka was nearly 6.7 billion dollars in 2014-15, but by the end of January 2022, it was at 4.49 billion dollars.
The Impact of the Sri-Lankan crisis is currently experienced by Indian businesses as well, especially the auto sector. According to a recent report by a financial daily in April, leading Indian automotive firms like Mahindra & Mahindra, Tata Motors, Ashok Leyland, and TVS Motors have stopped exporting vehicle kits to Sri Lanka and halted production at their Sri Lankan assembly owing to the country’s perilous forex reserves and ongoing fuel scarcities. “The instability in Sri Lanka could affect Indian Oil, Airtel, Taj Hotels, Dabur, Ashok Leyland, Tata Communications, Asian Paints, and State Bank of India,” revealed Dezan Shira & Associates, in an India Briefing note.
Port of Colombo
With the ongoing Sri Lankan economic crisis, Colombo port has become the most concerning part of the Indian economy. The Colombo port deals with more than 30 percent of India’s container traffic along with 60 percent of transshipment. A disturbance in the services of Colombo port would certainly be harmful to the Indian economy. As of now, thousands of vessels sent from India to Sri Lanka are remaining undeclared at the port, along with several transshipments. The major reason behind this disturbance is the transfer of the containers between the terminals has not been possible due to the ongoing commotion across Sri Lanka. To address this issue, there is a build-up of cargo meant for Sri Lanka at Indian ports. But it’s quite evident that this will result in augmented cost and overcrowding problems at Indian ports. According to the reports, India has already started building a transshipment hub of its own in Kerala to deal with this crisis.
Refugee Calamity
Amidst all these commotions, a refugee crisis is bound to upsurge from the current situation in Sri Lanka, and on the humanitarian ground; India will step forward to help Sri Lanka as a neighbor. Though India has already sent help through life-saving medicines, food, and fuel, it might just not be enough and India will soon find itself in a moral position to assist its neighbor.
In some of the earlier instances also, whenever political turmoil occurred in Sri Lanka, there has been a significant influx of Tamil ethnic refugees from the Sinhala-dominated Island to India. Envisaging the continuance of the crisis which might become stronger in the upcoming days, a large number of people might flee Sri Lanka to take refuge in India. This will be a difficult situation for India both socially and economically to manage such a huge amount of refugee influx from Sri Lanka.
Investment
In Sri Lanka, India has some massive investments across industry verticals such as real estate, tourism and hotel, telecommunication, manufacturing, banking, financial services, petroleum refining, and so on. Remaining affected due to the ongoing crisis in Sri Lanka, these investments might have to witness much worse situations in the coming days. With Foreign Direct Investment (FDI) from India to Sri Lanka amounting to about $1.7 billion from 2005 to 2019, India might have to incur a severe loss. Therefore, many industry stalwarts are rooting for India’s interference in the current ongoing crisis to save its neighbor and its investments.
Positive News
Sri Lanka was regarded as one of the largest suppliers of orthodox tea all over the world. Amidst the ongoing crisis, foreign buyers from Iran, Turkey, Iraq, and Russia are contacting Indian planters at Kolkata and Assam to meet the demand. Due to this, at one of the recent Kolkata auctions, the average price for orthodox tea leaf witness an upsurge of up to 41 percent in comparison to the last year’s sale. Amidst, the fuel shortage in Sri Lanka its apparel sector is suffering as well. According to a recent report issued by US International Trade Administration, the apparel export industry which accounted for about 44% of the country’s total exports, is envisaging a massive downfall. Meanwhile, the apparel orders from the UK, EU, and Latin American countries are now being sent to India’s Tirupur, the hub of the textile industry in Tamil Nadu.
Sri Lanka has been one of our friendly allies and an important partner for India. Even as some of our businesses are facing disturbances, and some are trying to fill in the space created by the Sri Lankan crisis, our assistance in this time of need will only lead to better ties with the island nation that had to bear the consequences of placing its trust in China.