Wednesday, Dec 07, 2022

The Sri Lankan Conundrum: What Will India Do Now?


The Sri Lankan Conundrum: What Will India Do Now?

Strategically speaking, a messy Sri Lanka is dangerous for India because a new wave of refugees could emerge and their frustration with their government may establish bases here. As the country continues to spiral downwards, India faces a new conundrum.

Prime Minister Narendra Modi with Sri Lanka's Mahinda Rajapaksa (File Photo)
Prime Minister Narendra Modi with Sri Lanka's Mahinda Rajapaksa (File Photo) PTI

Among the worst things that could happen to India at present, is greater turmoil in our region. With a failed state in Afghanistan, there is little scope for India to also be tolerant of a failed state in Sri Lanka.

As Sri Lanka continues to spiral downwards to historic lows, India faces a new conundrum. Strategically speaking, a messy Sri Lanka is dangerous for India because a new wave of refugees could emerge and their frustration with their government may establish bases here. Perhaps these numbers are limited due to fuel shortages, preventing boats from carrying them.

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Sri Lankans look at India as a saviour, as they have always done over years of history. This cultural bond between India and Sri Lanka certainly needs revival and nurturing but it cannot ignore the harsh realities through which Sri Lanka has trussed their relationship with India.

The ongoing economic mess amid the lack of a stable government, and then everything landing up in the lap of the Parliament to decide who the next leadership will be, does not solve matters. It makes them more precarious. An army coup will be the last straw.

What should India do at the present time?

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Politically, it would be a matter of grave risk to enter the political mess of Sri Lanka. President Gotabaya had the opportunity to establish a technocratic cabinet with parliamentary approval. He missed the boat on that. There are elements in Sri Lanka who believe India should have used its heft to ease him out much earlier. But India was unwilling. Anti-Rajapaksa protests in Colombo often had unreported anti-Indian slogans; Indian economic assistance for daily use to Sri Lanka was targeted at the people but was perceived as supportive of the regime. This is a contradiction India would continuously have to deal with. No, no aid can be directly given to the people. It has to be routed to the government because it is based on G2G loans.

Whichever government is in power, India will support it. The problem is within Sri Lanka. The people are in rebellion and  see the entire political system at fault.  This is not directed only at the Rajapaksa family, but also at Ranil Wickramasinghe, and the entire political spectrum. When all party meetings take place, and now decisions are in the hands of Parliament to elect a new president for the next 2 years and 4 months, and to appoint a new cabinet, the rebellious people see the political class taking advantage of their political efforts and reapportion the gains of power among themselves. This is unacceptable to the people who have rebelled along with the civil society movements, including former elements of the JVP,  the Bar Association and younger clergy. When the political system in Sri Lanka is so cleaved, it is difficult for India to deal with resolving these political contradictions and to play the role of a facilitator as has been suggested.

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The best thing for India to do would be to let Sri Lanka resolve its own political mess and deal with whichever government comes to power making it amply clear that we are supportive of the Sri Lankan people as we have been over centuries and our assistance is humanitarian in nature.

On the economic side, Sri Lanka needs urgent assistance, which India provides. This should continue. This is through lines of credit or RBI swap arrangements. Colombo needs to repay these and is adding to the considerable debt of $ 51 billion; when it will be repaid is a moot point. Should India keep adding to Sri Lankan debt burden? The other option is to do it as grants. That is avoided as grants typically are from the budget of the MEA whereas LOCs are offered by the ExIm Bank of India through budgetary support of the Ministry of Finance.

Some analysts in Sri Lanka mistakenly see this as a deviation between the Foreign and Finance Ministries in India.

Also Read | Sri Lanka Faces The Test Of Democracy As Yesterday’s Heroes Become Today's Villains

India should support Sri Lanka's economic management by providing capacity building and human resources. A recent visit by the foreign and finance secretaries was a step in this direction.  Working-level engagement with Sri Lankan institutions to better manage them like the central bank, and the major PSUs for energy, food etc.
Given the nature of Sri Lankan polity, where every politician uses an anti-India card to secure more votes at the next election, it would be better for India to have these supporting assets based in India and not in Colombo. This remote support should be provided as the second stage of lending. This could also include credit sales of rice, fuel and fertilizer from Indian companies to Sri Lankan PSUs under a long-term guarantee credit scheme. India should support Sri Lanka with the Bretton Woods institutions and Asian Development Bank for an early bailout. Sri Lanka needs a cash infusion and then specific support. Some of that could be routed through Indian institutions because in Sri Lanka at present, the government is unstable and how institutions work remains uncertain.
The IMF always carves out a hefty cost. A part of Sri Lanka's problem has been that they have been to the IMF 16 times, almost twice every decade. Each time they followed the IMF dictum but did not manage it well. The IMF is again going to call for a reduction in civil service and defence services personnel, privatisation of government assets like airlines, port, shipping and more private sector involvement in energy supplies for instance.

In this India could play an important supporting role . India is trying to set up solar plants off the islands of Jaffna; as part of the International Solar Alliance, India should support more solar energy plants in Sri Lanka through urgent feasibility studies. These can be funded through hybrid models which the ISA is working out and which the World Bank and ADB should be able to provide.

Similarly, where privatisation of airlines shipping or ports is concerned, India should encourage its private sector to step in, to invest in them with a view to making these profitable by integrating them into their own operations. It should be announced that India would do it for a period of three years and then be ready to disinvest to Sri Lankan investors if feasible. Acquisition of the Colombo port of which 70 per cent of cargo is destined for India could be a strategic move.

The main point to remember is that India should not raise the debt stress of Sri Lanka but look to invest in equity to give them a reasonably fair deal for their assets at this time.

Where demobilisation of the military, and reduction in civil service is concerned, India should step in with impact investment funds and capacity-building efforts which can be granted. A mixture of these would perhaps create a new entrepreneurial class, which is not dependent on the government for employment.

Another important area to consider is that the Sri Lankan economy depends a lot on tea, textile exports and tourism. Tourism assets could be invested in by Indian hotel chains and integrated with tourism in India. This will take time but the support of big Indian brands operating in Sri Lanka would generate confidence among Indian tourists and could gain from a Maldives-like boom. Similarly with tea and textiles. They require inputs and raw materials constrained due to foreign exchange restrictions. With RBI announcing a rupee trading mechanism, Sri Lanka should be persuaded to enter into such trading with India which will allow its tea and textile sectors to obtain inputs from India and possibly export.
India needs to balance its generosity as a neighbour while valuing its history with Colombo. The people of Sri Lanka are seeking major changes whose contours are unclear. India must remain available for assistance but not seen as taking advantage of a weak neighbour. Yet the engagement should include clear strategic markers outside which Colombo should restrain itself.
Given the state of the world, there are too many crises for countries besides India to even focus on Sri Lanka.
(Gurjit Singh is India's Ambassador to Germany, Indonesia and Ethiopia and has served in several countries including Sri Lanka. Views expressed are personal)