Nirmala Sitharaman, Finance Minister of India, speaking at the International Monetary Fund (IMF) recently has requested to consider Sri Lanka temporarily as a ‘low-income country’.
Made a few years ago, such a statement would have been considered an insult. Sri Lanka was the first South Asian nation to rise to middle-income status. India took more than a decade more to reach that milestone. Still, there were no frenzied responses to Sitharaman’s request from the other side of Palk Strait. Her intention was to help Sri Lanka at its difficult hour; a ‘low-income economy’ categorization would receive more multilateral assistance to tide over the unprecedented financial crisis it now faces.
Sitharaman and her colleague Subrahmanyam Jaishankar, Foreign Minister of India, have been going beyond their mandates to assist fix the macroeconomic issues faced by the ‘Chotaa Bhai’ (little brother), neighboring Sri Lanka. During a recent visit to Colombo Jaishankar held discussions with Sri Lanka’s government and opposition leaders, and visited several Indiaassisted projects as well. These interventions, we guess, happen with the backing of the Narendra Modi government that finds a politically neutral and economically challenged nation in its backyard more comfortable.
There are possibly more than an altruistic reason – by experience, India now knows how a trouble-free Sri Lanka benefits its own endeavors. The era of a cold war, where each supports the opposite camp in the international political landscape, are now over.
Suggesting the India-Sri Lanka relationship is now at its best over the post-independence history, is an understatement. India’s disposition is reminiscent of the ever-romantic hero of a Bollywood movie determined to win the hand of the heroine. In true Bollywood style the couple dance in the streets and in the rain, mementorily oblivious to challenges in life.
It is foolhardy for Sri Lanka to attempt to emerge from its economic issues while keeping India out of the trade equation. Without India, we will be as isolated as we are now
The villain, too, is on the scene. China, for reasons one cannot easily fathom, has cold shoulderd Sri Lanka during its need. As a key creditor to whom nearly 10% of Sri Lanka’s cumulative foreign currency debt is owed, China could have made a difference had it chosen to do so. Instead, it spurned Sri Lanka’s appeals for restructuring the debt outstanding to it. India jumped at the irresistible opportunity of Sri Lanka’s break-up with China.
With India’s magnanimous help, it now becomes Sri Lanka’s responsibility to nurture this newfound ‘Bhai-Bhai’ brotherhood. We have been ignoring India for too long. This isn’t the time to persist with that mistake. It is not just because we are in trouble. Irrespective of Sri Lanka’s present economic issues, the country has plenty of reasons to align its future with India’s – even if that means abandoning our so-called nonaligned foreign policy to one that is pro-India.
These are the facts. The Indian economy is the world’s sixth-largest in nominal GDP terms and the third-largest by purchasing power parity (PPP).
In 2019–20, the foreign direct investment (FDI) into India topped $75 billion – only a little less than Sri Lanka’s GDP. The Bombay Stock Exchange and National Stock Exchange are among the world’s largest by market capitalization. India is also the world’s sixth-largest manufacturer, representing 3% of global output, employing over 57 million people. The Indian IT industry is a major exporter of services topping over $200 billion revenue and employing over four million people. India’s chemical industry is extremely diversified and estimated to be worth $180 billion. The tourism industry contributes about 10% of India’s GDP and employs over 42 million people. The country is the world’s second largest food producer. Agricultural exports in 2020 topped $36 billion. The Indian textiles industry is estimated at $100 billion and contributes 13% of industrial output and 2.3% of India’s GDP while employing over 45 million people. India’s telecommunication industry is the world’s second-largest by the number of connections and internet users. It is also the world’s second-largest coal producer, the second-largest cement producer, the second-largest steel producer, and the third-largest electricity producer.
Now, what country sits across the fence and limits business with such a massive global economic powerhouse? Sadly that was what Sri Lanka did for the last seventy-four years. India is our third largest export destination accounting for just 6.6% of exports. For imports, it is the second, with $4.6 billion (22%) annually. We continuously ignore the potential of India for exports. The question has always been: what could we possibly export to India?
Let me take two examples from the service sector. Education and Health Services. India is a well-developed market for both these sectors. The current education market in India is expected to increase from $117 to $225 billion by 2025. India’s edu-tech startups have received a total investment of $4.7 billion in 2021, up from $2.2 billion in 2020. The number of colleges in India tops 42,000 while there are a little under 1,000 universities. In 2021, Byju’s – an Indian multinational educational technology company, headquartered in Bangalore – raised $300 million increasing the company’s valuation to $18 billion in 2021. The story is similar in healthcare, where the hospital industry is forecast to grow to $133 billion by year end.
Does this mean these two industries are saturated? Hardly. Thousands of Sri Lankan students study in India. How many Indian students study here? Similarly, thousands of Sri Lankan patients travel to India for healthcare, not vice versa.
Why cannot Sri Lanka attract business from India for these two sectors? Take Sri Lanka’s higher education industry for example. State universities have never been geared to attract foreign students, ever. They have no quotas. They have no residential facilities for post-grad students. Surprisingly non-state universities too cater only to Sri Lankan students (except a handful of Maldivian ones). If Malaysia, Indonesia, and even Bangladesh can, why cannot Sri Lanka attract Indian students? Shouldn’t this be a prospect Sri Lanka seriously considers?
Then there are other trade impediments. The Indian Rupee remains a nonconvertible currency in Sri Lanka. Except for Pakistan and probably Afghanistan, Sri Lanka remains the only South Asian country that does not use the Indian notes in parallel with its own currency. Indian visitors here must first convert their currency to US dollars and then those dollars to Sri Lankan rupees. Indians receive no preferences in obtaining a visa. This is certainly not how we should treat Indian travelers. India now is the country that sends most tourists to Sri Lanka.
Road transportation too can play an important role in making Sri Lanka a maritime and/or aviation hub. Imagine the difference a road link across the Palk Strait can make. We feel SouthIndian cities are too far, but they aren’t. Were there roads, driving to Madurai, should have taken less than three hours from Mannar. Any place in Kerala is within six hours. Chennai-Colombo on good roads may take about 12 hours. The states of Kerala and Tamil Nadu and the lower half of Karnataka are within this limit. What does this mean? With a road link and hassle-free entry, South Indians can take their flights directly from Bandaranaike International Airport. This is no joke. BIA is better equipped, better networked (except Chennai, which is at the same level), and more convenient than any South-Indian airport.
A 35-kilometer bridge to link the two countries was first proposed more than a century ago; in 1894 by a consultant engineer for railways in Madras. It was taken seriously by the then colonial government. A technical blueprint was drafted. A cost analysis too was completed. By 1914, the Mannar line was built to connect Talaimannar on Mannar Island to the Sri Lankan mainland. On the Indian side, the Indian railway network was extended to Dhanushkodi. Still, the international bridge didn’t happen. This is one infrastructure project that should be given priority if we are serious about building a common future with India.
Sri Lanka never had the same kind of problems its neighbors had with India. Sri Lanka has always been one of the friendliest nations to India, with relationship strains on only a handful of occasions. Sri Lanka’s political hostilities, if any, were with only one South-Indian state, that too largely with its government and not with the people. If these prevent business between the two countries it is unfortunate. Right now Colombo and Delhi have no serious issues. Against this backdrop, the newfound relationship should be the foundation for the everlasting close trade partnerships between the two countries. Once that is principally agreed, the rest will be just tightening nuts and bolts.
It is foolhardy for Sri Lanka to attempt to emerge from its economic issues while keeping India out of the trade equation. Without India, we will be as isolated as we are now. The reasons that separated Sri Lanka from India historically have largely been political. This was unfortunate. Business should be free from political, religious, and cultural barriers. A power game, at the cost of losing opportunities, will not benefit the people.
Indian visitors here must first convert their currency to US dollars and then those dollars to Sri Lankan rupees. Indians receive no preferences in obtaining a visa. This is certainly not how we should treat Indian travellers. India now is the country that sends most tourists to Sri Lanka