Sri Lankan Crises – Impact on India

Sri Lankan Crises

Sri Lanka is currently going through its biggest economic crisis in history. Essential goods are now so expensive that the average individual cannot afford to buy them. Sri Lanka’s government was compelled to enforce a curfew and then declare a state of emergency after anti-Rajapaksa protests spread across the nation and turned violent. The biggest economic crisis in decades has led to a political crisis in Sri Lanka. The island nation’s ongoing political situation has worsened due to President Gotabaya Rajapaksa’s resignation announcement. The island nation’s rapidly deteriorating economy is the primary contributor to the current predicament.

Today, it has an inflation rate of more than 21%. The entire public system in Sri Lanka has collapsed due to such high inflation rates. There is a state of emergency, markets are closed, inflation is at an all-time high, there are power outages, there is a lack of necessities like fuel, food, and medicine, and there is more than $50 billion in debt with just $2 billion in foreign exchange reserves. Additionally, this crisis is bad news for India as well. India is the third-largest trading partner of Sri Lanka and one of the major contributors to foreign direct investment (FDI). Trade with India is coming to a grinding halt as the country’s political and economic turmoil worsens. Many Indian exporters are keeping their businesses suspended out of concern that their Sri Lankan partners would not be paid.

Major Impact on India

Concerning the effects of the economic crisis in Sri Lanka, the Colombo port is the most worrying aspect of the Indian economy. One of India’s most crucial ports in terms of strategic importance, the Colombo port city handles more than 30% of the country’s container traffic and 60% of its transhipment. India would lose out if the Colombo port’s services were interrupted. At Indian ports, this will lead to higher costs and congestion issues. India has begun to develop its transhipment hub in Kerala to address the situation, but it might already be too late.

Apart from this, The growing influence of China and the Chinese Communist Party has been one of the factors in the Sri Lankan economic crisis that India finds to be the most alarming. The largest single lender and source of foreign direct investment in Sri Lanka is China at the moment. Chinese investments in Sri Lanka have not succeeded in producing enough income or jobs. Due to this, the Sri Lankan government was forced to declare bankruptcy and hand over to China its strategically positioned townships and ports, including Hambantota. If Sri Lanka’s economic situation worsens, it may also lose possession of its territory in other port cities. India has to take the necessary actions to contain the growing Chinese influence in the area.

Needless to say, There will inevitably be a humanitarian and refugee crisis due to the ongoing events in Sri Lanka. History demonstrates that anytime a political crisis develops in Sri Lanka, Tamil ethnic refugees from the island’s Sinhala-dominated population flee through the Palk Strait and the Gulf of Mannar and arrive in India. If the crisis persists in its current form, a sizable number of people may be forced to leave Sri Lanka in search of safety in India. Such a large-scale refugee influx would be challenging for India to manage socially and economically.

Moreover, We all know that India has a major investment in the island nation across a variety of sectors, including manufacturing, tourism, real estate, telecommunications, banking, and financial services. They are already being impacted by Sri Lanka’s present situation, which is predicted to get worse over the next few days.

Sri Lanka has also contacted several businesses and nations, including Russia and India, for supplies of basic necessities and fuel. India gave crisis-torn Sri Lanka 44,000 MT of desperately needed urea as part of a credit line, in addition to other emergency supplies like food, gasoline, and medical. Since Sri Lanka plays a key role in India’s “Neighborhood First” foreign policy, India is continually investigating the situation and making significant efforts to support the cash-strapped economy.

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