With stronger bonds, India hopes to check China’s expansion in Sri Lanka

India cannot afford to slacken its engagement with Sri Lanka. (File image)

Sri Lankan President Ranil Wickremesinghe’s long overdue visit to India may have been a rather short one, lasting as it did just a little over 24 hours. However, neither the much-delayed visit nor its brief duration lessens its significance. Essentially, the two nations have reiterated their resolve to keep each other’s strategic and economic interests in mind and reap mutual benefits as close neighbours, which should also help stem China’s inroads into the island.

The Sri Lankan PM’s visit, his first since taking charge a year ago, enabled India to press ahead with its efforts to forge closer economic links with Sri Lanka. This is clearly evident in the joint document, ‘‘Promoting Connectivity, Catalysing Prosperity: India-Sri Lanka Economic Partnership Vision” unveiled during the visit. India did press upon Sri Lanka yet again to implement the contentious 13th amendment devolving powers to the provinces. But New Delhi is unlikely to push it beyond a point, knowing well it has to strike a balance between Sri Lankan Tamils’ aspirations and cordial ties with Colombo.

Economic Diplomacy

Connectivity was the leitmotif running through the vision document, encompassing cooperation in sectors ranging from economics, trade and energy to ports, infrastructure and air connectivity. In putting the various strands together in the document, there is also an effort to formalise what New Delhi has been conveying to Colombo for a while – that an economic partnership can be mutually beneficial.

A lot of issues spelt out have been on the discussion table between the two sides for a long time. For instance, a power grid interconnection between the two countries and an oil pipeline from southern India to Sri Lanka. Even land connectivity, President Wickremesinghe’s long-held dream, finds mention in the vision document. Hopefully, the common vision that’s now been enunciated will make things move beyond the discussion stage to concrete implementation. For President Wickremesinghe, looking to pull Sri Lanka out of economic doldrums, any external lifelines that are offered seem a viable option for now. New Delhi, on its part, will have to wait and see if Sri Lanka is able to deliver on the nitty-gritty of the proposed economic partnership especially when there could be domestic opposition to some of the proposals.

As close neighbours, India and Sri Lanka have had robust economic ties with a Free Trade Agreement (FTA) in place for over two decades. India is among Sri Lanka’s largest trading partners with bilateral trade pegged at $6.2 billion. In the last four years, India has also been the largest source of foreign direct investment (FDI) in Sri Lanka.

It is to provide a fillip to bilateral trade and investments, particularly in “new and priority areas”, that the two sides have decided to commence discussions on an Economic and Technological Cooperation Agreement (ECTA). However, this proposed pact could run into domestic opposition in Sri Lanka, just as the Comprehensive Economic Partnership Agreement (CEPA) did. CEPA could not be signed despite the completion of negotiations because it was perceived as being inimical to Sri Lankan interests. Consequently, both sides will need to do a lot of heavy lifting for the ECTA to actually fructify. That the two sides have already agreed to designate the Indian rupee as currency for trade settlements and want to operationalise UPI-based digital payments is a step in the right direction.

Crucially for India, it has managed to get Sri Lanka on board to develop Trincomalee as an energy hub, aiming as it is to have a significant presence in this strategically-located seaport with a deep natural harbour. An MoU has been signed for economic development projects in Trincomalee. Located not too far away from the Indian coastline, New Delhi heaved a sigh of relief after it was finally able to prevail upon Colombo to sign the pact allowing for the co-development of oil tank farms there lest they fall into Chinese hands.

China’s Strategic Inroads

Indeed, for New Delhi countering the expanding Chinese footprints in the island nation has been a strategic imperative for long. Fearful as it is about encirclement by China, which has been increasing its presence in countries in the Indian Ocean Region (IOR), New Delhi has wisely sought to counter these moves by seeking to partner with such nations in their developmental efforts.

India did well in assisting Sri Lanka financially as it reeled under an economic meltdown last year under Gotabaya Rajapaksa's Presidency, with a severe forex crunch leading to acute food and fuel shortages. It provided the island with $4 billion in financial assistance, while China looked the other way. In helping a friend in need, New Delhi gained the upper hand in the high-stakes battle for influence in a country that straddles vital sea lanes and therefore has become the battleground for Great Powers contestation.

India, however, cannot afford to slacken its engagement with Sri Lanka. Already, impelled by the need to meet its fuel requirements without having to dip too much into its own forex reserves, state-owned Ceylon Petroleum Corporation signed an agreement with China-owned Sinopec in May allowing it to enter the island’s retail fuel market. While an Australian and US company have also got the nod to enter the fuel market, for India it’s Sinopec’s entry that is a great concern. New Delhi knows well that Colombo will continue to turn to Beijing for financial assistance, never mind that it proved to be an unreliable friend during its economic crisis or the Chinese debt trap.

Forging closer economic linkages, and retaining the goodwill it managed to generate, is vital for India to wean away the island nation from excessive dependence on Chinese assistance.

Having managed to secure a $3 billion bailout from the International Monetary Fund (IMF), the Sri Lankan government is now faced with the challenging task of carrying out reforms. President Wickremesinghe knows he will have to lean on New Delhi if he has to revive his country’s economy and meet the IMF bail-out conditions as he steers his country through a challenging domestic and external debt restructuring plan.

President Wickremesinghe was effusive in expressing gratitude to New Delhi for its assistance when it was in dire straits. Prime Minister Narendra Modi, in turn, said a “stable, secure and prosperous Sri Lanka is not only in India’s interest but in the interest of the entire IOR”. Colombo, hopefully, will heed New Delhi’s words.

Parul Chandra is a New Delhi-based senior journalist who writes on foreign affairs. Views are personal, and do not represent the stand of this publication.