How economic and political crises simmering in the neighbourhood affect India

Representative Image. Protestors hold the Sri Lankan flag outside the Prime Ministers Office in Colombo (Image: AP)

From tourism and trade to bilateral relations, the economic upheaval in Sri Lanka and Nepal and the political crisis in Pakistan may hurt India in multiple ways.

While the government believes there are no immediate fallouts for New Delhi, the state of political emergency in national capitals in India's immediate neighbourhood has got officials at the Ministry of External Affairs (MEA) worried. The economic impact of the various crises are expected to begin manifesting themselves soon, if governments of those countries fail to address the crisis quickly.

"The crisis has also given India an opportunity to regain preeminence in regional matters, which were encroached on by China for the past few years. This time, Indian positions have found broad support from the public in Sri Lanka and Nepal," an MEA official said.

At the first ever Inter-Ministerial Coordination Group (IMCG) meeting organised on April 12, as part of efforts to promote relations between India and its neighbouring countries by the MEA, Ministries and Departments were requested to accord priority to India’s neighbours in their international activities, programmes and projects.

Sri Lanka

The economic turmoil in Sri Lanka is currently viewed as the most pressing foreign challenge by the MEA with diplomatic and trade ramifications. Moneycontrol had last week reported how Indian exporters were rethinking plans to ship goods to Sri Lanka as the country's state-run companies were running out of money and private buyers were orders.

While India is under pressure to continue supporting the island country through a series of lines of credit, political dialogue with the administration of Sri Lankan Prime Minister Mahinda Rajapaksha has not yielded results, sources said. While protests rock Sri Lanka demanding Rajapaksha's resignation, he has resisted both political as well as economic change by spurring plans of urgent economic reforms.

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Beyond geopolitics, tourism has been the area of bilateral relations that has taken the hardest hit. Fresh off the Covid pandemic, Indians were eyeing a series of foreign destinations and the island nation had emerged a quick favourite owing to its affordability and access. Till 2021, Sri Lanka did not even feature among the top 15 foreign tourist destinations for Indians. But that year, Indian tourist ar­rivals rose to over 56,000 visitors, making Indians the largest foreign group of tourists in Sri Lanka for the first time in decades.

With an economic crisis breaking out in the country, Indians are cancelling advance bookings, even though hotels have dropped rates to record lows, according to the Travel Agents Association of India. Many major resort groups in Sri Lanka have communicated lower prices for new all-inclusive and secure stays whereby tourists wouldn't have to step out of the premises, they say. But scenes of violent clashes on the streets of major cities have held back Indian tourists.

The government does not make public statistics on the number of Indians who visit abroad specifically for tourism purposes. According to the India Tourism Statistics 2019, 3.84 lakh Indian nationals departed from India for Sri Lanka. This number includes business and family visits by both Sri Lankan Tamils settled in India and Indian Tamils with family ties to the island nation.

Sri Lankan Tamils, who live predominantly in the north and east of the island, form the largest minority group at 11.1 percent as of the last population census conducted in 2012. While they have always traditionally had deep commercial and family ties to India, in the past 10 years many Sri Lankan Tamils have shifted to India for work, especially in Chennai and Bangalore.

The Sri Lankan Tamil community were at the centre of the 26-year-long Sri Lankan civil war fought between the Sri Lankan government in Colombo and the erstwhile Liberation Tigers of Tamil Eelam (LTTE) militant group based in the northern Jaffna peninsula. The war ended in 2009 when former army general and current President of Sri Lanka Gotabaya Rajapaksa launched a military campaign in core LTTE areas.

He also happens to be Mahinda Rajapaksha's elder brother. Under the Rajapaksha administration, Sri Lankan Tamils have continued to complain of racial and economic discrimination and the current crisis has led to many illegally crossing to Tamil Nadu on fishing boats and makeshift vessels. The government of Tamil Nadu has urgently requested the Home Ministry to address the issue and asked the Centre to ensure this doesn't become a fresh humanitarian crisis.

Nepal

While going on record to state that Nepal's economic situation is nowhere near as bad as Sri Lanka, Nepalese Economic Minister Janardhan Sharma earlier this week accepted that the country was facing double-digit inflation. Land-locked Nepal imports a predominant proportion of its requirements from India. Exports to Nepal stood at $8.7 billion in the first 11-months of 2021-22, and spanned almost all categories of retail and industrial goods.

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Pricier goods from India, due to rising commodity prices, and disruptions to the supply chain have led to a surge in the price of goods in Nepal. The situation reached a head when Nepalese Prime Minister Sher Bahadur Deuba sacked the head of Nepal Rastra Bank, the country's central bank, earlier this month over allegations of leaking sensitive information and failing to address the crisis of falling forex reserves.

The central bank had last week banned the import of all non-essential goods to save foreign exchange, which had fallen to a level where it can sustain only 6 months of imports. This has spooked Indian exporters given that Nepal represents a ready market in the neighbourhood. Nepal is the ninth-largest export destination for Indian goods. Among those that could be affected are automobile manufacturers.

Meanwhile, of the $1 billion worth of Nepal's exports to India, it is estimated that a large chunk is imported by Indian traders to simply reexport onwards. The recent three-day-long state visit by prime minister Deuba, Nepal requested India to invest more in export-oriented industries in the country, a senior MEA official said.

Pakistan

Apart from the usual fears of a heavier diplomatic slugfest, and tensions at the border, the latest political crisis in neighbouring Pakistan has surprisingly brought prospects for a positive change in relations.

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Any regime change in Islamabad has always been monitored closely by New Delhi for potential changes in the border scenario, and militancy. But officials say that hopes of a political rapprochement also always accompany a new Prime Minister taking charge in Islamabad.

Large segments of the traders favour reopening bilateral trade ties with India.

While it is still early days, MEA is watching whether incoming Prime Minister Shehbaz Sharif signals the beginning of talks that slowly take bilateral engagements to what they were before August 2019. That was when diplomatic relations were downgraded by both sides after India moved to revoke the special status of Jammu and Kashmir by abrogating Article 370.

Multiple reports from Islamabad have shown that large segments of the traders favour reopening bilateral trade ties with India. Pakistani importers, especially of cotton, textiles, pharmaceuticals and chemicals and exporters of dry fruits and handicrafts are keen on the border being open once more, officials said. They added that the government expects the thaw in bilateral relations to begin from this if they happen at all.