Col R Hariharan (Retd)
World Focus, September
2024 issue | https://www.worldfocus.in/current_issue?key=492&val=India-and-Neighbourhood
Changes in strategic backdrop
There is a seamless link
between trade and war. In the words of American scholar of international
economy Robert Gilpin, “trade is the oldest and most important economic nexus
among nations. Indeed, trade along with war has been central to the evolution
of international relations.”
Peninsular India is separated from Sri Lanka by 40 km of Palk Strait. Sri Lanka’s location astride the international sea lanes of the Indian Ocean gives it a pivotal role of strategic importanceu not only for India, but for global security and trade as well.
Indian Navy’s domination of
the IOR is being challenged by the increasing presence of PLA Navy’s warships.
China has also increased its strategic reach in IOR by creating maritime assets
and facilities in Indian Ocean rim countries. In the East, Kyakpyu port in
Myanmar and Chittagong port developed by China in Bangladesh provide direct
access from the mainland to the Bay of Bengal. China has a 99-year lease on Sri
Lanka’s Hambantota port that dominates the sea lanes of the Indian
Ocean. A Chinese company controls two carrier terminals in Colombo
port. China also exercises control over the reclaimed land in Colombo port
economic zone. In the West, China has shown interest in developing
infrastructure in Ilhavanddhippolhu atoll in Maldives, strategically located on
the sea lanes of the Indian Ocean. China has gained a foothold near the Strait
of Hormuz after developing a deep sea port in Gwadar in Pakistan as a part of
the CPEC. Since 2017, China has established its first overseas military base in
Djibouti in the Horn of Africa.
Alarmed at the increasing
threat posed by China to international maritime traffic in the Indo-Pacific,
four nations – India, the US, Japan and Australia - have formed the
‘Quad’, a quadrilateral non-military framework. It is ushering in close cooperation
between the members in manufacturing, logistics and political issues. The AUKUS
– Australia-US – military alliance is poised to introduce the nuclear
triad in the Indo-Pacific theatre. A trilateral alliance of the US-Japan-South
Korea has been formed to tackle any threat from China and its protégé North
Korea, flaunting their military strength in their vicinity.
China’s visible presence has
made India’s ‘Neighbourhood First’ policy more relevant not only to India’s
national security, but also its trade and commerce. Conscious of this, PM Modi
revamped maritime cooperation doctrine with the launch of the SAGAR (Security
and Growth for All in the Region) initiative March 12, 2015, to build better
relations with island nations of IOR - Sri Lanka, Maldives, Mauritius, and
Seychelles.
Impact of Covid 19 pandemic
The Covid-19 pandemic between
2020 to 2022 caused a huge set back to the economies of South Asian countries.
Sri Lanka was one of the most affected by the Covid pandemic. The
economy, largely dependent upon remittances from the Diaspora and tourism industry, suffered
heavily. The Ukraine war and the slapping of stringent sanctions against Russia
affected it further as tourists from the two countries formed around 15 percent
of international tourist travellers. By March 2022, the country saw 10-hour
power shutdowns almost every day, endless ques waited for hours for petrol at
pumps. Surgical operations were halted due to lack of medical supplies.
Newsprint shortage forced daily newspapers to go online mode; public exams in
schools were cancelled for want of paper. Adding to the woes, hydropower
generation dipped as water sources dried up and annual agriculture production
fell by 40 percent due to President Gotabaya Rajapaksa’s ill-timed ban on
import of chemical fertilizers and pesticides.
The country went bankrupt in
April 2022. Sri Lankan rupee was devalued by 36 percent, pushing up the prices
of daily necessities. In a bid to save foreign exchange, authorities banned
imports including fruits, vegetables and milk powder. The essential
items ran out of stock in stores adding to the agony of the public. The
public suffering from prolonged shortages and high prices gathered in mass
protests demanding the resignation of Rajapaksas in power as president and
prime minister. By July 9, 2022 it snowballed into Aragalaya, a
national movement spearheaded by university students. When ruling party goons
and troops tried to suppress the protests, irate mobs ransacked the houses of
President Gotabaya and Prime Minister Ranil Wickremesinghe. The Aragalaya protests
forced President Gotabaya to flee the country. Some semblance of order was
restored when the parliament installed Ranil Wickremesinghe as interim
president.
India-Sri Lanka vision
document
India played a crucial role in
supporting Sri Lanka during the economic crisis and recovery thereafter. India
provided over $4 billion in financial aid during its financial crisis. The aid
included credit lines for essential imports of food, medicines and fuel. India
was the first bilateral creditor to offer financing assurances to the
International Monetary Fund (IMF), which paved the way for other creditors to
follow suit. This enabled Sri Lanka to meet the conditions for formalising the
IMF programme for financial assistance. India also participated in
debt restructuring agreements along with other countries i.e., China,
France and Japan. These agreements allowed Sri Lanka to restructure its debt on
more favourable terms.
India and Sri Lanka formalised
their economic partnership after detailed discussion during President
Wickremesinghe’s visit to New Delhi on July 21, 2023. President Wickremesinghe
specially appreciated India’s timely, unprecedented, and crucial support to Sri
Lanka and its people. India and Sri Lanka agreed upon an economic
partnership vision to speed up Sri Lanka’s economic recovery. The vision
document’s title “Promoting Connectivity, Catalysing Prosperity: India-Sri
Lanka Economic Partnership Vision” contains the key elements of the
partnership. The plan is to strengthen the maritime, air, energy and
people-to-people connectivity between the two countries. They have signed
six energy agreements, including an oil pipeline from India to Sri Lanka,
electricity grid connectivity and cooperation on renewable energy.
India’s decision to allow
the use of Indian rupee for trade settlement between the two countries and
allowing the use of UPI based digital payment system is likely to
boost trade and tourism. Already there are signs of improvement in Indian
tourist arrivals in Sri Lanka and we can expect it to grow exponentially when
ferry services and air connectivity are beefed up.
With South India becoming an
industrial and IT hub, a multipurpose infrastructure link with Sri Lanka would
bring a sea change in economic growth of the island nation. With Tamil Nadu
becoming the heartland of automobile industry and IT manufacture, such a link
would particularly benefit the Northern and Eastern provinces.
Contentious issues
A land bridge connecting India
and Sri Lanka across the Palk Strait is one of the ideas mooted in the
joint vision statement. It is not a new idea; the then PM Ranil Wickremesinghe
had proposed it in 2004. The proposal for a 23 km long Palk Strait
Bridge met with intense opposition in Sri Lanka. Tamil Nadu Chief Minister Ms
Jayalalithaa was also opposed to the idea on security considerations. In 2015,
India’s transport minister Nitin Gadkari proposed to build the ‘Hanuman bridge’
with the aid of the Asian Development Bank as a part of
the Trans Asian road network. However, it was shot down by Sri Lanka
Minister for highways Lakshman Kiriella. He said “We are against it
because people of Sri Lanka are opposed to it. We cannot let India build a bridge.”
As Sri Lanka had joined the BRI just then; apparently Sri Lanka did not
want to upset China. Moreover, India’s domination of Sri Lankan life is
resented by sections of people in all political parties.
It will not be easy for
President Wickremesinghe to politically sell the idea of a land bridge with
India, particularly when he is contesting the presidential election in
September 2024. The attitude of Sri Lanka Podujana Peramuna (SLPP) with its
strong Sinhala nationalist moorings and the Janatha Vimukthi Peramuna (JVP) and
its cohorts is no better. The land bridge proposal can be used by them to whip
up anti-India rhetoric. Even a non- political personality like Colombo
Archbishop Malcom Cardinal Ranjith had opposed the land bridge proposal
from the pulpit.
The India-Sri Lanka vision
document also speaks of two other issues that are contentious. The first is on
encouraging Indian investments in the divestment of Sri Lankan State-owned
Enterprises (SOE). This sale of SOE is already mired in political controversy.
The Economic and Technology Cooperation Agreement (ETCA) proposal to
comprehensively enhance bilateral trade and investments has already become a
politically sensitive issue. Some stakeholders like domestic businesses in Sri
Lanka fear increased competition from India can put them out of business. There
are differences in regulatory frameworks and standards between the two
countries. Harmonizing them will require full cooperation and effort. There is
public opposition from professional bodies and trade unions in Sri Lanka who
worry about the influx of professionals from India reducing their opportunities
for employment. Similarly, some fear the huge economic disparity between the
“big brother” India and Sri Lanka could lead to Indian domination of certain
sectors gaining unequal benefits.
Adequate infrastructure and
connectivity are essential for smooth implementation of ETCA. Both countries
need to invest to improve logistics, transportation, digital trade and services
for people to see the advantages of economic technical connectivity. Similarly,
the two countries should invest in building trust through people to people
connectivity at various levels particularly through increased links with
academic institutions, professional bodies and civil society organisations in
both countries.
Despite these challenges, both
India and Sri Lanka seem to recognize the potential benefits of ETCA and
continue to work towards it. After all, the India-Sri Lanka Free Trade
Agreement (FTA) has been quite successful in enhancing economic ties between the
two countries.
Bilateral trade has grown from $658 million in 2000, when the FTA was signed, to $5.45 billion in 2021 before Covid-19 pandemic queered the pitch of growth. Sri Lanka benefited considerably from the FTA with more than 60 percent of its exports to India utilizing the provisions of the agreement. This enabled Sri Lankan products to enter the Indian market with zero tariff. As against this, only 5 percent of India’s exports to Sri Lanka used FTA provisions. India is one of the largest investors, exceeding $2.2 billion in 2021. India has been the largest source of tourists to Sri Lanka further strengthening the island nation's economy. Overall, the ISFTA has played a crucial role in deepening the economic and commercial partnership between India and Sri Lanka, benefiting both nations in various sectors.
Col R Hariharan VSM, a retired MI specialist on
South Asia and terrorism, served as the head of intelligence of the Indian
Peace Keeping Force in Sri Lanka 1987-90. He is associated with the Chennai
Centre for China Studies. Email: haridirect@gmail.com Website: https://col.hariharan.info
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