The story so far: Sri Lanka’s Foreign Minister G.L. Peiris on Mondaymet his counterpartS. Jaishankarin New Delhi, as part of the ongoing high-level, and increasingly frequent, bilateral engagement between the neighbours. New Delhi’s economic assistance to Colombo in recent weeks has made a “world of difference”, he toldThe Hinduin an interview. After a year marked by strain and a trust deficit, recent developments signal a “fresh energy” in Indo-Lanka ties, according to Mr. Peiris.
- India from the beginning of this year has given Sri Lanka economic relief worth over $1.4 billion. Sri Lanka is further negotiating a $1 billion assistance from India as it faces an unprecedented economic crisis.
- The main sources of tension between the countries include the sudden cancellation of the 2019 agreement to jointly develop the East Container terminal in Colombo along with Japan as well as the the Palk Bay fisheries conflict and the Tamil question.
- India extended generous financial assistance to the island nation following the latter’s announcement of signing the Trincomalee oil tank farm deal with India.
How is India helping?
Beginning January 2022, India has been providing crucial economic support to the island nation in the grip of a severe dollar crisis that, many fear, might lead to a sovereign default, and a severe shortage of essentials in the import-reliant country.
The relief extended by India from the beginning of this year totals over $1.4 billion —a $400 currency swap, a $500 loan deferment and a $500 Line of Credit for fuel imports. Sri Lanka is further negotiating a $1 billion assistance from India to help the near 22 million-strong country as it faces an unprecedented economic crisis.
Before the pandemic struck, and soon after, it was India that the ruling Rajapaksas first approached with requests for a debt freeze and currency swap. However, for about two years there was no response from Delhi. Meanwhile, Colombo also sought and obtained financial assistance from China through the pandemic years, by way of new loans and a currency swap. China also provided about 80% of the vaccines administered by Sri Lanka, where about 65% of the population is fully vaccinated. Colombo also received some assistance from other countries, such as Bangladesh.
Is there a shift?
The last year saw a dramatic turn in Indo-Lanka relations, beginning with Colombo’s sudden decision in February 2021, to unilaterally cancel a 2019 agreement to jointly develop a strategic port (East Container) terminal in Colombo with India and Japan.
New Delhi and Tokyo were shocked. They expressed their displeasure at the Rajapaksa government’s decision unambiguously. However, Colombo soon offered what it called a “compromise deal” to India, roping in the Adani Group as the main investor in a neighbouring, West Container Terminal.
India quickly took the offer but its concerns over a long-pending agreement on the joint development of the World War II-era oil tanks in the strategically located, eastern Trincomalee district remained. It was a key talking point during Sri Lankan Finance Minister Basil Rajapaksa’s visit to New Delhi end of last year, when he discussed a “four-pronged” approach with India to address Sri Lanka’s food and energy security. Mr. Basil sort emergency assistance from India when Sri Lanka’s foreign reserves dropped to $1.6 billion in November 2021, leaving no dollars for importing essentials, or meeting debt obligations.
New Delhi’s assistance, diplomatic sources indicated, was contingent on Colombo firming up the Trincomalee project agreement. Sure enough, Sri Lanka soon announced that it would sign the Trincomalee oil tank farm deal with India. On January 6, 2022, the two sides inked the agreement, marking a major milestone in the long-dragging project. A week later, India confirmed a $400 million currency swap for Sri Lanka, while deferring another $500 million due for settlement to the Asian Clearing Union (ACU). On February 2, 2022, the Export Import Bank (EXIM) of India and the Government of Sri Lanka signed a $500- million Line of Credit agreement to ease Sri Lanka’s fuel imports.
Are there other sources of tension?
Yes. The Palk Bay fisheries conflict, involving fishermen of Tamil Nadu and their counterparts in war-affected northern Sri Lanka has escalated in recent weeks, following mid-sea clashes between fishermen from both sides.
Two fishermen from Sri Lanka’s northern Jaffna district were found dead after one such clash, triggering massive protests. The Sri Lankan fishermen protested Indian fishermen’s use of the destructive bottom trawling fishing method along their coast, despite their voicing concern over its impact on marine resources and their post-war livelihoods for years now. Bilateral talks between governments and fisher leaders have proved unsuccessful so far, with Tamil Nadu fishermen reluctant to move away from the practice of bottom trawling that yields high profits.
Another aspect in bilateral engagement is the pending political solution to Sri Lanka’s Tamil question. Arguably, India’s emphasis on the rights of Tamils has come down in recent years, with a growing China pre-occupation dominating its Sri Lanka policy.
India and Sri Lanka’s Tamil leadership continue to engage on this aspect. Prominent Tamil leaders recently wrote to Prime Minister Narendra Modi, seeking India’s intervention in ensuring a durable political solution to Sri Lanka’s historic ethnic question. However, it remains to be seen if India has the leverage to influence the Rajapaksa administration to decisively address the Tamils’ long-pending concerns, in the new Constitution promised by President Gotabaya Rajapaksa.