India-Sri Lanka Economic Partnership Evolution

Syllabus: 

GS 2:

  • India and neighbourhood relations
  • Effect of policies and politics of regional countries.

Why in the News?

Sri Lanka’s new President, Anura Kumara Dissanayake, visited India to strengthen bilateral ties. The visit resulted in agreements focusing on LNG supplies, trade enhancement, education, technology exchanges, and promoting Indian FDI in Sri Lanka.

India-Sri Lanka Economic Partnership Evolution

India-Sri Lanka Economic Partnership

  • Strategic collaboration: The partnership aims to transform Sri Lanka from a recipient of aid to a regional hub for trade and investment, fostering economic progress in South Asia.
  • India’s assistance: India’s commitment includes LNG supply, support for digital governance, and enhancing public services to modernize Sri Lanka’s administration and tackle corruption.
  • IMF-backed reforms: Sri Lanka continues its IMF program with a focus on social spending and governance reforms, aligning with India’s initiatives.
  • Security cooperation: The renewed partnership assures Sri Lanka’s respect for India’s security concerns, a critical factor in fostering mutual trust.
  • Historical significance: India’s consistent support during Sri Lanka’s economic crisis has paved the way for a shift from dependency to partnership.

Key Areas of Collaboration

  • Bilateral trade agreements: The focus is on upgrading the India-Sri Lanka Free Trade Agreement (FTA), covering goods, services, and investment, with a target to conclude a comprehensive trade deal by 2026.
  • Production-Linked Incentive (PLI) schemes: Extending India’s PLI schemes to Sri Lanka in sectors like solar panel manufacturing can build regional supply chains and align with India’s China+1 strategy.
  • Connectivity and tourism: Initiatives like ferry services, modernized airports, and joint port development projects aim to enhance regional connectivity and promote tourism-led growth.
  • Energy security: Projects such as an undersea oil pipeline and electricity transmission line will bolster Sri Lanka’s energy stability, reflecting India’s commitment to regional energy cooperation.
  • Digital infrastructure: Leveraging India’s expertise in digital public infrastructure will aid Sri Lanka in achieving modernized governance and targeted social protection measures.

Key Benefits for Sri Lanka from the India Partnership

  • Economic Stability: Sri Lanka benefits from India’s support during the ongoing economic recovery process, with continued assistance in terms of trade and investment.
  • Access to Indian Markets: The FTA and B2B ties with India provide Sri Lanka’s businesses with access to India’s vast market, encouraging growth and economic diversification.
  • Improved Infrastructure: Infrastructure projects, such as the undersea oil pipeline, energy transmission lines, and port developments, are key to enhancing Sri Lanka’s energy security and trade capacity.
  • Modernized Governance: India’s expertise in digital governance will help Sri Lanka modernize its public services and combat corruption, contributing to better governance.
  • Tourism Growth: Enhanced connectivity and tourism projects, such as improved air and sea links, will boost Sri Lanka’s tourism sector, attracting more international visitors and increasing foreign exchange inflows.

India’s Strategic Interests in Strengthening Sri Lanka Relations

  • Regional Stability: Strengthening ties with Sri Lanka ensures regional security and prevents undue influence from external powers like China, reinforcing India’s position in South Asia.
  • Energy Security: Collaborative projects on energy infrastructure, like the undersea pipeline and electricity transmission lines, align with India’s energy security goals in the region.
  • Trade Expansion: India aims to tap into Sri Lanka’s strategic location, improving regional trade routes and enhancing economic interdependence with South Asia.
  • Geopolitical Leverage: Strengthening economic and diplomatic relations with Sri Lanka allows India to counter geopolitical challenges in the region, particularly with rival countries like China and Pakistan.
  • Fostering Multilateral Cooperation: The partnership with Sri Lanka provides an opportunity for India to play a leading role in fostering multilateral economic cooperation within South Asia and beyond.

Challenges in Strengthening Ties

  • Debt distress: Sri Lanka faces challenges with its external debt repayments, starting in 2028, requiring sustained foreign exchange through trade-led growth.
  • Policy alignment: Delays in trade negotiations due to internal reassessments in Sri Lanka risk slowing bilateral progress.
  • Geopolitical tensions: India’s strained ties with other neighbors, such as Bangladesh, Maldives, and Nepal, add complexity to maintaining a unified South Asia policy.
  • Domestic opposition: Local skepticism towards projects like the Adani wind power initiative and infrastructure developments may hinder foreign investment.
  • Economic recovery risks: Sri Lanka’s dependence on external aid and tourism raises concerns about sustainable growth, especially amid global economic uncertainties.

Way Forward

  • Regional trade model: Strengthen Sri Lanka’s role in South Asia by fostering B2B ties, particularly with Indian MSMEs, to diversify and deepen economic engagement.
  • Asymmetrical trade treatment: Ensure special provisions for Sri Lanka in trade deals to address domestic concerns, coupled with aid-for-trade measures.
  • Infrastructure projects: Accelerate implementation of key projects like the undersea oil pipeline and enhance regional energy security.
  • Strategic diplomacy: Leverage partnerships with institutions like the IMF and World Bank to prevent future economic crises in Sri Lanka.
  • Sustainable growth policies: Promote investments in renewable energy, digital governance, and tourism infrastructure to achieve long-term economic stability.

Conclusion

The evolving India-Sri Lanka partnership reflects a shift from aid-driven relations to trade-based cooperation, reinforcing India’s Neighbourhood First Policy. This collaboration can serve as a model for South Asia, enhancing regional integration and solidifying India’s role as a regional power.

SOURCE: Indian Express

Mains Practice Question

Evaluate the potential of India-Sri Lanka economic cooperation in transforming South Asia into a progressive economic region. Discuss the challenges and suggest strategies to enhance bilateral ties.