Why expecting goodwill towards India to lead to a dampening of relations between Sri Lanka and China would be unrealistic
Sri Lanka is passing through the worst economic crisis in its history. Depreciation of the Lankan rupee, high inflation and shortages of essential items due to depletion in foreign reserves, have taken their toll on the people. The foreign reserves have indeed dwindled to $1.9 billion in the month of March this year, which can hardly account for imports for two months. Add to that, the Sri Lankan currency has been declared the worst-performing currency in the world.
There are even reports of a few deaths while standing in the queue for groceries and fuels. There are also reports of some Sri Lankans migrating to India amidst this crisis. In this severe crisis, India as a good neighbour, and following its ‘neighbourhood first’ policy, has already extended financial assistance to the tune of $2.4 billion for the people of Sri Lanka. The Government of Sri Lanka has expressed its appreciation and gratitude to India’s timely assistance to deal with the crisis.
Given the natural propensity of India to help its neighbours in times of crisis and the goodwill such help has generated, the question now being asked in India is: Should India use this crisis as an opportunity to stop Sri Lanka from falling permanently into the Chinese orbit? However, it is being argued in this column that Indian assistance should not be seen as an opportunity to thwart the Chinese presence on the island. Such expectations are likely to be belied.
It would be naive to imagine that Indian assistance would automatically bring Sri Lanka under Indian influence. Nevertheless, India must continue to provide as much assistance to Sri Lanka as possible to deal with the present economic crisis, because prolonged instability in the country will have a spill-over effect on India too. One has to remember that even though China is an important factor, it is not the “only” factor in India-Sri Lanka relations. There are other bilateral issues between the two countries which are equally important.
Any kind of instability in Sri Lanka, be it political, social, economic or security, is not in India’s interests. Due to geographical proximity, India is the first one in the South Asian region to feel the repercussions of man-made or natural disasters in the island nation. Therefore, India has always extended humanitarian, economic and security assistance whenever the country was in crisis, i.e., the Janatha Vimukthi Peramuna (JVP) insurrections in 1971 or 1988; tsunami in 2004; assistance during the last phase of the Eelam War; developmental assistance for the relief, rehabilitation and reconstruction efforts in the post-Eelam war period; assistance to deal with the disasters in the maritime domain etc. The current financial assistance to Sri Lanka is not the first of its kind.
It is interesting to note that China increased its footprint significantly during 2010-14, even when a huge amount of developmental assistance came to Sri Lanka from India, a large portion of which were in the form of grants. The affinity of the then Rajapaksa administration towards China for readily extending financial loans to fulfil Mahinda Rajapaksa’s developmental vision for the country without questioning the human rights records or progress of the political reconciliation in the post-war period had helped China strengthen its strategic presence in Sri Lanka.
By 2015, China had established its influence in Sri Lanka so much that the newly formed National Unity Government (NUG) could not review their policy approach towards China, even if it wanted to, given the economic repercussions the country might have to face. In fact, the NUG, which suspended some of the Chinese projects, ended up having an equity swap agreement with China to develop the Hambantota Port Special Economic Zone and leased 178 hectares of land for 99 years to China Harbour Engineering Company Port City Colombo (Pvt.) Limited which can be further leased to a third party for another 99 years as part of an agreement signed between China and Sri Lanka to develop the Colombo International Financial Centre. Primarily with these two projects, along with several other strategic projects, it is believed that China has strengthened its grip on Sri Lanka. After the Rajapaksas returned to power, the Chinese influence appears to have increased in both economic and political spheres.
However, following the pandemic and the resultant economic downturn especially because of the near-collapse of tourism on which the Sri Lankan economy depended heavily, there has been a realisation on the part of the Sri Lankan government that all the eggs cannot be put in one basket and foreign policy and economy of the country need to be diversified. As the economic crisis deepened, Sri Lanka looked for assistance from its other bilateral partners too.
As the Sri Lankan foreign reserves declined to $1.7 billion in the month of November 2021, financial assistance poured in from bilateral partners including Bangladesh, China, India and so on. Given the intensity of Chinese economic activities in terms of loans, much more was expected from China as an important respondent to the economic crisis in Sri Lanka. However, China has not come up with a positive response till date to the Sri Lankan request for debt restructuring. India, on the other hand, actively responded to all the requests of Sri Lanka positively. Yet it is unlikely that Sri Lankans will stop relying on China and try to loosen the grip of China, even if the pro-Chinese Gotabaya administration were to be replaced by a new regime under the pressure of ongoing public protests.
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At the same time, following the lessons learnt from the ongoing economic crisis, Sri Lanka may not put everything in the Chinese basket and it might try to practice the “non-aligned” foreign policy on the ground, which so far was only used as rhetoric. In other words, Sri Lanka may improve relations with all important countries by adhering to a non-aligned policy and the lessons learnt during the ongoing economic crisis, but in no way, it may allow the China-Sri Lanka bilateral relations to decline keeping the geostrategic and economic repercussions in mind.
Sri Lanka, from the very beginning of its independence, has perceived India as a strategic threat and therefore has always tried to counter India by getting closer to any third country that is hostile towards India. In the process of countering India, some regimes in Sri Lanka were even ready to provide strategic facilities to extra-regional powers. For example, Sri Lanka had tried to address its perceived fear of India by having Defence Cooperation with the UK from 1948-56; it got closer to the US during the Cold War period and with China in the new millennium.
It is noteworthy to mention here that all the regimes in Sri Lanka since 1948 have not used this policy of countering India explicitly, but a thorough analysis of Sri Lanka’s foreign policy does suggest that even the so-called India-friendly regime in Sri Lanka including that of Sirimavo Bandaranaike perceived India as a threat. The 1963 China-Sri Lanka maritime agreement was signed by the Sirimavo administration most likely keeping India in mind. This unannounced policy to counter India, even if not explicitly, is likely to be followed even if the Gotabaya administration is replaced with a new regime, despite the Indian assistance. In the current context, given Sri Lanka’s suspicion of the Quad and its member countries, it will definitely like to maintain its relations with China.
In addition, Sri Lanka will also be compelled to strengthen its relations with China amid the ongoing economic crisis. Even though China has not responded positively yet to Sri Lanka’s request for debt restructuring, it is committed to providing loans to the island nation to repay the Chinese loans. In the current situation of bankruptcy, Sri Lanka is likely to accept such loans even if they come with hidden conditions. Sri Lanka might now even give its nod to the China-Sri Lanka Free Trade Agreement, which it was delaying for some time, in return for financial assistance.
Sri Lanka has already faced economic challenges, when in the past, it suspended the Chinese Colombo Port City Projects in 2015 and cancelled a deal on supply of organic fertilisers in 2021. A huge amount had to be paid as compensation in both cases. China is involved in several unfinished projects in Sri Lanka. The current economic situation demands that all the unfinished projects are completed in time so that they can contribute positively to the growth of the economy. Hence, Sri Lanka will try to avoid doing anything that might offend China and put more economic burden on Sri Lanka.
One should not rejoice in India too much over the shift of contracts to instal three hybrid energy projects, which were originally given to the Chinese, to India. The point to be noted here is that the contract to develop the East Container Terminal, which was earlier signed between India, Japan and Sri Lanka, has now gone to a Chinese company.
The declaration of a temporary suspension of repayment of all external debts by the Lankan government will adversely impact the investors’ confidence to invest in Sri Lanka. Following the ongoing political and economic crisis, it is unlikely that many of the investors will be willing to invest in Sri Lanka. The viability of some of the mega infrastructure projects such as Colombo International Financial Centre and Hambantota Special Economic Zone largely depend on foreign investment. Sri Lanka is depending heavily on Chinese investors to invest in these China-funded infrastructure projects. In such circumstances, it is most likely that willingly or unwillingly, Sri Lanka will have to strengthen its relations with China.
Be that as it may, the economic crisis has left Sri Lanka in dire straits. As much as Sri Lankans express their gratitude for Indian assistance, they know that it alone cannot rescue Sri Lanka from this crisis. Therefore, expecting goodwill towards India to lead to a dampening of relations between Sri Lanka and China would be unrealistic.
Nevertheless, India should continue with its benevolent gesture of providing assistance to Sri Lanka to reiterate the point that as a regional and responsible power India has the capability and willingness to help the neighbouring countries in a time of crisis. India must also put across the message to the Sri Lankan authority that while India does not want to put any conditions attached with the financial assistance, yet it expects that Sri Lanka should respect the bilateral agreements and the security commitments made to India even after the crisis is over.
The author is an Associate Fellow with the Manohar Parrikar Institute for Defence Studies and Analyses. Views expressed are personal and do not reflect the official position of the Institute.
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