India makes inroads in Sri Lanka under the shadow of China

COLOMBO/NEW DELHI, Dec 27 (Reuters) – When Sri Lanka descended into its worst economic crisis in seven decades, leading to deadly riots and alarming shortages of fuel, food and medicine earlier this year, its giant neighbor from the north intervened.

India provided around $4 billion in rapid relief between January and July, including lines of credit, a currency swap deal and deferred import payments, and sent a warship carrying essential medicines for the 22 million inhabitants of the island.

Now, as Sri Lanka concludes a $2.9 billion loan agreement with the International Monetary Fund (IMF) and its economy stabilizes, India is looking to land ambitious long-term investments in the aim of countering the influence of its regional rival, China, said the minister of the government and three sources.

“What we are looking at right now are investments from them,” Sri Lankan Foreign Minister Ali Sabry said in an interview this month, referring to a series of projects worth more than $1 billion currently under discussion that would help boost India’s presence in Sri Lanka. “They are ready to invest as much as it takes.”

“India is probably looking at this strategically…because of their security concerns,” Sabry said.

India’s foreign ministry did not respond to questions from Reuters about its plans and strategic goals in Sri Lanka.

Regional security would always be a priority for New Delhi, a source with knowledge of the matter told Reuters, at a time of ongoing friction with China along their Himalayan border.

“There are no two ways to solve security issues,” the source said, asking not to be named due to the sensitivity of the issue. “In terms of long-term commitment, the focus is on investing.”

Apart from seeking Indian investment to set up renewable energy and electricity projects in the north of the island, Sri Lanka is also keen to work with New Delhi to expand and develop the port of Trincomalee in the north- is in a major port, several officials said.

Taking advantage of Sri Lanka’s northern proximity to India, these projects could help New Delhi balance China’s vast infrastructure projects in the south of the island that have been built over the past 15 years.

The Tamil-dominated north of Sri Lanka also shares ethnic ties with the southern Indian state of Tamil Nadu.


The talks and the scale of Indian aid this year, which far exceeds other donors, underscore New Delhi’s efforts to reclaim its influence on the island located a few miles from its southern tip along busy waterways. linking Asia to Europe.

At the end of June, a fortnight before tens of thousands of angry Sri Lankans took to the streets and forced President Gotabaya Rajapaksa to flee the country, India’s top diplomat visited the main city of Colombo for meetings.

Foreign Minister Vinay Kwatra, who was accompanied by officials from the Indian Ministry of Finance, met with Rajapaksa and Prime Minister Ranil Wickremesinghe, among others.

In conversations with Sri Lankan leaders, Kwatra and other Indian officials flagged China’s position as a key geopolitical concern, according to a Sri Lankan government source with direct knowledge of the discussions.

The source, who declined to be named because she was not authorized to speak to the press, said China’s huge role in the island’s economy, which had multiplied under the previous Rajapaksa administrations, troubled India more than anything else.

Details of the June meeting have not previously been released.

Kwatra and the Indian and Sri Lankan foreign ministries did not respond to questions from Reuters about the June meetings.

In a statement released immediately after Kwatra’s visit, India’s foreign ministry said the talks had mainly focused on economic issues, including deepening investment. He made no mention of China.

New Delhi has long been concerned about China’s influence in its neighborhood, especially in Nepal, Bangladesh and Sri Lanka. Sensitivities have grown and diplomatic relations have frayed since Indian and Chinese troops clashed along a remote Himalayan border in 2020, leaving dozens of soldiers dead.

“We understand that it is their prerogative to keep them safe,” Sabry said, referring to India. “And as far as Sri Lanka is concerned, we don’t want to contribute to any escalation of tension between the countries.”

China, meanwhile, has engaged with the Sri Lankan government on the debt restructuring that is needed for the IMF deal to go through, in addition to sending shipments of medicine, fuel and rice.

The World Bank estimates Beijing’s loans to be around $7 billion, or 12% of Sri Lanka’s $63 billion external debt.

“We are willing to work with relevant countries and international financial institutions to continue to play a positive role in helping Sri Lanka,” China’s foreign ministry said in response to written questions from Reuters.

The ministry said it had no details of India’s aid and investment in Sri Lanka and that its own support in Sri Lanka was “not targeted at third parties”.


Sri Lanka has descended into a financial crisis after the COVID-19 pandemic decimated tourism and remittances from citizens working abroad plummeted. The war in Ukraine has pushed the prices of imports, especially fuel, soaring.

Rajapaksa’s administration has also resisted IMF aid, meaning foreign exchange reserves have shrunk, worsening fuel and medicine shortages.

Violent protests erupted as tens of thousands of people took to the streets and stormed government buildings.

The president fled the country in July and resigned. At that time, Sri Lanka finally engaged with the IMF and the two sides have since reached a preliminary loan agreement of $2.9 billion.

But it was Indian aid that bought Sri Lanka time.

“Without India, Sri Lanka would have collapsed like Lebanon,” said Uditha Devapriya, chief international relations analyst at Factum, a Colombo-based foreign policy think tank.

“Sri Lanka has clearly benefited from being the closest neighbor to the most powerful country in the region. It is also in India’s interest to provide stability in its backyard.”

In October, Wickremesinghe – who took over the presidency in July after Rajapaksa stepped down – unveiled a plan for Trincomalee, which has a natural deep-water harbour, including a proposal to work with India to develop a strategic port there. in addition to creating a new industrial area and energy hub, according to details released by his office.

India and Sri Lanka are also in preliminary talks on an undersea cable to connect the two countries’ power grids and a fuel pipeline from southern mainland India to northern Sri Lanka – projects that could cost together at least $4 billion, according to officials on both sides. .

In the energy sector, India’s state-owned NTPC is working on a 100-megawatt solar power plant in Sampur, Trincomalee district, after the two countries signed an agreement in March.

In northwestern Sri Lanka, India’s Adani Group is awaiting regulatory approvals for two wind projects worth $500 million in the Mannar region, Sri Lanka’s energy minister said in August. Kanchana Wijesekera.

Off the northwest coast, ONGC Videsh Limited (OVL), the overseas arm of Delhi’s state-owned Oil and Natural Gas Corporation, has set its sights on exploration licenses and has had multiple discussions with Sri Lankan authorities are finalizing regulations before inviting bids from global companies, two officials from the Sri Lankan energy ministry said.

Both asked not to be named as discussions were ongoing.

Adani, NTPC and OVL did not respond to questions from Reuters about their plans in Sri Lanka.

The oil and gas exploration push was part of the discussions in June, the source familiar with the talks said.


Foreign Minister Sabry said the Sri Lankan government was keen to capitalize on India’s growing economic prowess, particularly through renewable energy and infrastructure projects, while maintaining key relationships with d other major allies, including China and Japan.

Despite India’s recent goodwill in Sri Lanka, New Delhi remains wary of the Chinese presence.

In July and August, the regional rivals became embroiled in a diplomatic row over a Chinese military survey vessel, the Yuan Wang 5, which stopped at the port of Hambantota in southern Sri Lanka.

At the time, Indian Foreign Ministry spokesman Arindam Bagchi said that although India had provided “unprecedented” support to Sri Lanka during the economic crisis, New Delhi would not back down from its needs. of security.

Despite India’s crucial help during this year’s financial crisis, Sri Lanka still needs China – one of its main creditors – to agree to a debt restructuring plan, along with India and the Japan, to complete the IMF loan deal, Sri Lankan officials said.

“Chinese investments are very important, Chinese relations are very important,” Sabry said.

“So I don’t think even India or anyone expects Sri Lanka not to work with China. To be fair to them, none of them asked us.”

Reporting by Uditha Jayasinghe and Devjyot Ghoshal; Editing by Mike Collett-White and Raju Gopalakrishnan

Our standards: The Thomson Reuters Trust Principles.

Author: niso

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