The Foreign Office statement – the first reaction since protests escalated this week – comes at a time when the island nation’s economy is in dire straits and in desperate need of a revival.
Speaking about the crisis, MEA Spokesman Arindam Bagchi said India had provided “unprecedented support of over $3.8 billion” to alleviate the dire economic situation in Sri Lanka.
The island nation is reeling from the worst economic crisis since independence with fuel shortages, foreign exchange reserves falling to dangerously low levels and soaring inflation.
A battle of influence
India has been playing the role of a worried neighbor since the crisis in Sri Lanka came to a head a few weeks ago.
From extending a $500 million line of credit for fuel imports to offering $1 billion in aid to purchase essentials, India’s largesse has helped Sri Lanka to avoid the worst of its crisis.
Notably, India’s massive financial and material aid to Sri Lanka stands in stark contrast to the perception that Chinese debt has contributed to the island nation’s crippling disorder.
It also allowed New Delhi to wean some of the influence that China had gained over Sri Lanka in recent years.
Chinese debt trap?
As part of Chinese President Xi Jinping’s Belt and Road Initiative to funnel money into infrastructure projects across Asia and Africa, former Sri Lankan President Mahinda Rajapaksa has contracted many loans, including $1.1 billion to build a port in his home region of Hambantota despite the plan having been rejected by a panel of experts.
When the deep-sea port failed to generate the foreign revenue needed to repay China, Sri Lanka was forced in 2017 to cede the facility and thousands of acres of land around it to Beijing for 99 years. which gave China a key foothold just across the region. rival the coastline of India.
Not just the port, many other white elephant projects that helped fuel the crisis have been repaid by billions of dollars in Chinese loans. All are now gathering dust in Hambantota district, home to the beleaguered Rajapaksa clan.
For example, overlooking the harbor is another Chinese-backed extravaganza: a $15.5 million conference center that has gone largely unused since it opened.
Nearby is Rajapaksa Airport, built with a $200 million loan from China, which is so little used that at one point it could not cover its electricity bill.
In the capital Colombo, there is the Chinese-funded Port City project – a 665-acre man-made island created with the aim of becoming a financial center rivaling Dubai.
The Rajapaksas have often been criticized for using their political influence to award projects to China.
India gets involved
Due to a series of reckless economic decisions, exacerbated by the Covid-19 pandemic, Sri Lanka now finds itself deeply in debt.
China, which is Sri Lanka’s third largest creditor after Japan and the Asian Development Bank, accounts for around 10% of this debt.
Although Beijing has offered to lend more on concessional terms, it has been reluctant to cancel some of Sri Lanka’s debt, perhaps for fear of prompting other borrowers in Asia and Africa to demand the same relief.
Prime Minister Ranil Wickremesinghe, who took office after the resignation of Mahinda Rajapaksa, recently said that Sri Lanka had been unable to access $1.5 billion in loans offered by China because Beijing has made the country’s money dependent on having enough foreign exchange reserves for three months.
Beijing has also promised to “play a positive role” in Sri Lanka’s talks with the IMF and is providing some 500 million yuan, or about $75 million, in humanitarian aid.
Meanwhile, India has stepped in with millions of dollars worth of rice, powdered milk, medicine and other humanitarian aid, as well as diesel fuel and gasoline.
New Delhi has also provided Sri Lanka with a $4 billion line of credit on concessional terms that has been widely credited with helping the country avoid a worsening of the crisis.
Wickremesinghe, who has served as prime minister several times before, is seen as pro-Indian, although he has limited influence in his current role with Gotabaya Rajapaksa remaining president.
With the Rajapaksa family seen as pro-China, and with the general perception that China is partly to blame for the country’s problems, the political winds seem to be turning in India’s favor, experts say.
India has recently managed to snatch some of Beijing’s important projects from Sri Lanka, which is also a major destination for Indian exports.
In March, Sri Lanka finalized a joint venture with India to develop a solar power plant in the island nation. The same month, Colombo also terminated a contract with a Chinese company to build a $12 million wind farm in the country and offered it to an Indian rival.
“As India tries to maintain its strategic footprint in Sri Lanka, its main objective appears to be to minimize Chinese grip in the country,” said KC Singh, India’s former foreign secretary and strategic affairs expert.
As Sri Lanka still faces an uncertain future, much-needed outreach from India could help steer China away from its backyard and shift the balance in favor of New Delhi.
(With AP inputs)