Sri Lankan prime minister Ranil Wickremensinghe’s recent visit to India signifies a new high in India-Sri Lanka relations and this was his third visit post-2015 when a new regime came to power in Sri Lanka. The visit laid the foundation for long-term collaboration in the areas of energy, infrastructure, and special economic zones. India-Sri Lanka relations go way back to 2,500 years with strong cultural, linguistic and religious ties between the two countries. The FTA signed in 2000 has further improved relations and increased trade between the two countries.
The bilateral trade amounted to $4.7 billion in 2015, with India having a trade surplus with Sri Lanka. Sri Lanka happens to be India’s largest trading partner in SAARC and India, in turn, is Sri Lanka’s largest trading partner globally. In comparison, bilateral trade between China and Sri Lanka stood at $4 billion with the rate of growth being much higher and a Sri-Lanka China FTA also on the anvil. Coming to investment, India is one of the top four investors in Sri Lanka with cumulative investments of over $1 billion since 2003. On the contrary, China is the largest investor in Sri Lanka with funding and investment to the tune of nearly $15 billion in 2016. Most of the investment by China—both government and private—is largely in major infrastructure projects, especially ports and airports. China’s interest in Sri Lanka is largely attributable to its strategic location and the fact the Sri Lanka falls on the route of the Belt road initiative (BRI).
Given the growing dominance of China in South Asia and China’s close connections with Sri Lanka, in recent years the relationship between India and Sri Lanka has largely centred around economic cooperation and security concerns with less emphasis on political matters. The stress factor in the relationship is largely because of China. As mentioned earlier, China has pumped millions of dollars in Sri Lanka’s infrastructure since the end of a 26-year civil war in 2009. China’s so-called string of pearls strategy—an attempt to expand its influence in South Asia is closely watched and monitored by India. China’s flagship projects—Hambantota Port Development and the Colombo Port Project— are supported by loans and located at strategic points on the global sea trade route. Much of the infrastructure project funding comes through Chinese government companies.
Large projects like these make it easier for Beijing to draw Sri Lanka into its 21st-century maritime silk road project, all part of the One Belt, One Road (OBOR) initiative. In the last couple of years, India has focused all its efforts on countering the ever growing presence of China in Sri Lanka and involved in developing and reviving the world war-II oil storage facility in the strategically located eastern port down of Trincomalee and develop its infrastructure. According to the ministry of external affairs, India, Sri Lanka has been one of the major beneficiaries of development credit to the tune of $2.6 billion including $ 436 million as grants. The Indian government has also extended a line of credit of $167.4 million through the export-import bank of India for the repair and up gradation of the tsunami-damaged Colombo-Matara rail link. India has also been supporting a large number of small development projects in education, health and small and medium scale sector through its grant funding.
Further, talks are ongoing on upgrading the India-Sri Lanka FTA to a new trade pact called the Economic and Technological Cooperation Agreement (ETCA), which is expected to be signed by the end of 2017. The ETCA is proposed to enhance trade in services, investments and technology cooperation with India’s five fastest growing southern states of Karnataka, Tamilnadu, Kerala, Andhra Pradesh, Tamil Nadu and Telangana. Given these states proximity with Sri Lanka, the ECTA will leverage Sri Lanka’s unique geostrategic location at the crossroads of major shipping routes. Further, the ECTA would make Sri Lanka the geo-economic centre of South Asia and help it engage further with the rest of the region.
It is evident that so far the Sri Lankan government has been able to walk the tightrope and strike a balance in its relations with both India and China. However, it cannot be denied that Sri Lanka’s financial engagement with China is deep and covers a vast gamut of activities. Sri Lanka depends on China for its developmental needs. On the contrary, given the high level of regular interactions and ministerial-level meetings between Sri Lanka and India, the relations have stabilised and are at an all-time high. Despite Chinese dominance in Sri Lanka, India has managed to make its own mark, and in fact realised that Sri Lanka needs to be treated as an equal partner. Given the renewed trust factor between the two countries and with the recent visit of the PM Wikremasinghe, India-Sri Lanka has not only managed to stabilise the relationship but have also laid the foundation for a new era of friendship and cooperation between the two countries.