The unprecedented economic and political crisis in Sri Lanka is not good news for India

Sri Lanka descends into chaos. The precipitous fall of the island nation has been in the making. After several beleaguered efforts to leave the country, hours before President Gotabaya Rajapaksa was set to resign, invoking his executive powers, he fled to Male along with his wife and two bodyguards. Without tendering resignation, perhaps to avail immunity from arrest, Gotabaya left the country. As this news spread, protests intensified across the country demanding his resignation. To quell the protests, Prime Minister declared a state of emergency.  Hours later an official gazette stated that invoking article 37 (1) of the constitution, the President has appointed Prime Minister Ranil Wickremesinghe as the President of Sri Lanka.

In response to the massive people’s uproar, Prime Minister Mahinda Rajapaksa resigned on May 9^th but smartly Gotabaya replaced him with another crony Ranil Wickremesinghe. Now the elevation of Wickremesinghe as President who bolstered Rajapaksas and know to be Rajapaksa loyalist has riled the protestors. Incensed by the quick turn of events, demanding the resignations of Gotabaya and Wickremesinghe, the people stormed the President’s house, President’s Secretariat, and the Prime Minister’s official residence and took over the state-owned television channel Rupavihini (SLRC).

Over the weekend the protestors ran down the Presidential Palace and refused to leave until the President and the Prime Minister tendered their resignation. President agreed to resign on July 13^th and Prime Minister has offered to put down his resignation “on the formation of an alternative interim government”. Notwithstanding these conditionalities, Sri Lankan people are completely aware that a vast majority of the political dispensation is beholden to Rajapaksas.

Despite claims of Speaker receiving a phone call from Gotabaya confirming that he would send the resignation, there is no news of his resignation as yet.  Now steadily, the calls for Wickremesinghe’s resignation are peaking and he might be forced to quit. Also, the all-party opposition has now taken decision to allow the Speaker to take over as the acting President. Even otherwise, as per the constitution, if President and Prime Minister quit office, Speaker can act as interim President.

Simultaneously, there are reports of President Wickremesinghe asking the Speaker to nominate a Prime Minister acceptable to both the government and the opposition. Be as it may, the Speaker belongs to the Rajapaksa’s Sri Lanka Podujana Peramuna (SLPP) party and in the event of the election of new a President by the Parliament until the fresh elections which are due at the end of 2024. With SLPP still holding 100 seats in the 255-member parliament, there is a high possibility of the President being elected from the majority party and might likely be a Rajapaksa crony¹.

Indeed, even though the Rajapaksas have seemingly quit the office, they seem to control the strings. The opposition in Sri Lanka which have 122 seats includes majorly- the Samagi Jana Balawegaya (SJB), Tamilnadu National Alliance and 45 Independents. But the Janatha Vimukthi Permuna, which is most active on the ground is refusing the join the all-party interim government and the leader of the opposition belonging to SJB, Sajith Premadasa is reluctant to head the all-party government. Unless the opposition is united, the Rajapaksas will continue to seat a person favourable to them in the highest post.

The authoritarian rule of Rajapaksas, economic mismanagement, unsustainable loans, the sudden transition to organic farming, unviable tax cuts, and the covid induced decline in tourism have wrecked the economy and pushed the country into the worst economic crisis in the seven decades of its existence.  The stranglehold of the dynasty that ruthlessly brought an end to the 26-year-long civil war, stabilized its grip over the country for the past two decades. Accused of brutal war crimes, Rajapaksas pivoted to China for investments in infrastructure and inadvertently ended up pouring billions of dollars into unsustainable projects that drained the economy.

Shielding Sri Lanka on the global platform, China steadily expanded its footprint in the country by way of land reclamation close to Colombo airport. The iconic “White Elephants” Mattala airport, the world’s emptiest port, the biggest international cricket stadium and the Hambantota port, in Rajapaksa’s family bastion, has further exacerbated the debt burden of the country.

In lieu of debt servicing in 2017, the Sri Lankan government gave away Hambantota port to China signing a 99-year lease agreement.  Under the Rajapaksa regime, China has expanded its strategic and economic presence in Sri Lanka. In 2014, by docking submarines in Sri Lanka, China sent a signal to India of its expanding footprint in India’s strategic backyard.

The World Bank declared Sri Lanka a Middle-Income country after the country registered robust economic growth averaging 6.5 during the initial years of President Mahinda Rajapaksa’s regime. But the flawed economic policies of investing in long-term, economically unviable infrastructure development projects have stunted the growth. In 2015, Rajapaksas were voted out of power, riding on the storm of strong support from the ethnic majority in the aftermath of 2019 bomb blasts, Mahinda Rajapaksa occupied the Prime Ministerial position. Winning a landslide in 2019 Presidential elections, to circumvent the term limits on President, Gotabaya Rajapaksa took over as the President. He appointed Mahinda as Prime Minister and brothers Basil and Chamal as Minister of Finance and Irrigation respectively and nephew Namal Rajapaksa as Minister of youth and sports. Together, the Rajapaksa family controlled the entire power hierarchy of Sri Lanka.

Notwithstanding the signs of recession, in 2019, Gotabaya announced tax cuts in the face of depleting tourism revenues due to covid and falling for the Western Green Elites spell of ESG (Environment, Social Governance Criteria) banned the use of inorganic fertilizers. Sri Lanka has the highest ESG score of 98, above the Nordic countries and to make it a perfect score, Gotabaya impulsively stalled the import of fertilizers and ordered a transition to organic farming². This sudden shift caused a 50% to 60% drop in crop yields. The lucrative tea exports which earned $1.3 billion in forex suddenly crashed. Food shortages, sinking forex reserves, rising oil prices due to the Ukraine crisis has further accelerated the economic miseries. For the first time, Sri Lanka faulted on the foreign debt payments and the situation has come to such a pass that Sri Lanka last week had less than a day’s worth of fuel reserves.

Needless to say, Sri Lanka is in dire need of a leadership that can handle this crisis and diligently chalk out a plan to mitigate short-term, medium-term and long-term plans to ably pull out the economy from the crisis. While a techno-cabinet that can negotiate terms and conditions with IMF can be its best bet, even an acceptable all-party government at this point can instill some confidence in the Sri Lanka citizens who are seething with anger. Certainly, a smooth transition of power can at this point in time can avert an unprecedented political crisis and army takeover.

The economic crisis has snowballed into an unprecedented political crisis in Sri Lanka, throwing the entire government machinery out of gear. This has doubly complicated the situation for Lanka with the financial institutes like IMF unsure of whom to negotiate with. Political stability is a must for Sri Lanka to tide over this whopping economic crisis.

Besides the strong cultural, religious and civilizational connections, India has huge stakes in Sri Lanka. Geostrategically, Sri Lanka is in India’s immediate neighbourhood and China’s creeping strategic and economic expansion is a matter of great concern to India. Given the past history of misunderstandings and bad blood between the countries, India has to tread the path cautiously amid tumultuous political transitions and uncertainties. Carefully wading through these waters and responding to the Lankan crisis, India has committed $3.8 billion and assisted in initiating negotiations with IMF for a financial bailout. Standing up to its reputation as a first responder, India supplied food, medicines, essential supplies and fuel to Sri Lanka and earned the goodwill of the Island.

Colombo is a trans-shipment hub and sixty percent of India’s trans-shipment cargo is handled by the port. Realising the gravity of the economic crisis, forestalling any crisis South Indian ports have risen to the occasion and began handling the trans-shipment cargo. A four-member Indian team comprising of economists and finance experts headed by foreign secretary Vinay Kwatra, travelled to Sri Lanka in June to aid in quick economic recovery and discussed a partnership in infrastructure, connectivity, renewable energy and deepening economic linkages³.

Long accused of interference in domestic affairs, India steered clear of the political developments on the island and demolished the rumours of India sending troops to Sri Lanka and helping Gotabaya to leave the country. Noting that the economic crisis in Sri Lanka is a “serious matter”, MEA spokesperson reiterated that “India stands with the people of Sri Lanka as they seek to realise their aspirations for prosperity and progress through democratic means and values, established institutions and constitutional framework”⁴.

Since 1965 Sri Lanka has received 16 IMF bailouts. Behind the façade of high HDI, the Sri Lankan crisis has many lessons, the first among them being the perils of an entrenched dynasty rule, populism, absence of fiscal prudence, excess reliance on multilateral loans, and lack of developmental infrastructure. Indian macroeconomic indicators are stable and the country is endowed with a world-class regulatory framework to manage risks. Hence it would be churlish to draw parallels with the Sri Lankan economy.

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