A STUDY OF THE ECONOMIC CRISIS AND ITS IMPACTS WITH SPECIAL REFERENCE TO SRI LANKA

Abstract

The long-running financial crisis in Sri Lanka has put the country's government to its most significant test and caused great hardship for its citizens. Lanka is experiencing an economic and political emergency, with high expansion and erratic showings across the nation. The Sri Lankan government requires its citizens living abroad to send money home. Due to Sri Lanka's $51 billion in external obligations, 13 Lankan banks have been placed on rating watch negative. On the island paradise, inconvenience is in the making. There isn't any food available. Over the past few months, approximately 500,000 more Sri Lankans have become dependent. Basic medical procedures, prescriptions, and fuel are being discontinued. According to experts, the financial crisis may be more to blame for the deaths in Sri Lanka than the coronavirus. There are frequent blackouts and violent street brawls. The lack of force and the inability to obtain safe drinking water has made it extremely difficult to organize crisis healthcare services. There has been an intrusion into the security net projects. The situation in Sri Lanka is much more complicated than just a money crisis. There is a charitable emergency here. How could it have happened, and how did the public authority of Sri Lanka lose its money? are the only questions being asked. This exam paper's purpose is to provide answers to these questions. Additionally, the paper's author frames a thorough investigation of the problem and the causes of the financial emergency.

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A STUDY OF THE ECONOMIC CRISIS AND ITS
IMPACTS WITH SPECIAL REFERENCE TO SRI LANKA
Mr. Shivam Tripathi
Ms. Komal Sharma
Ms. Rudri Pandya
Abstract
The long-running financial crisis in Sri Lanka has put the country's government to its most
significant test and caused great hardship for its citizens. Lanka is experiencing an
economic and political emergency, with high expansion and erratic showings across the
nation. The Sri Lankan government requires its citizens living abroad to send money home.
Due to Sri Lanka's $51 billion in external obligations, 13 Lankan banks have been placed
on rating watch negative. On the island paradise, inconvenience is in the making. There
isn't any food available. Over the past few months, approximately 500,000 more Sri
Lankans have become dependent. Basic medical procedures, prescriptions, and fuel are
being discontinued. According to experts, the financial crisis may be more to blame for the
deaths in Sri Lanka than the coronavirus. There are frequent blackouts and violent street
brawls. The lack of force and the inability to obtain safe drinking water has made it
extremely difficult to organize crisis healthcare services. There has been an intrusion into
the security net projects. The situation in Sri Lanka is much more complicated than just a
money crisis. There is a charitable emergency here. How could it have happened, and how
did the public authority of Sri Lanka lose its money? are the only questions being asked.
This exam paper's purpose is to provide answers to these questions. Additionally, the
paper's author frames a thorough investigation of the problem and the causes of the
financial emergency.
Keywords: Economic Crisis, Sri lanka Economy, Financial Emergency, External Debts,
Covid-19 Pandemic, Inflation
1. INTRODUCTION
The neighborhood parts of India are facing clatter. Pakistan is suffering from a political
crisis in the west, Nepal is suffering a financial crisis in the north, and Sri Lanka is suffering
from an economic crisis south of India. Located on the end of the Indian subcontinent, Sri
Lanka is suffering an illness: an acute and likely the worst financial problem compounded
by the COVID-19 pandemic. The Sri Lankan government's mismanagement of funds
speed-up the economic crisis in the country. Sri Lanka relies heavily on tourism and the
export of some commodities for foreign exchange reserves to meet their import
expenditure. Sri Lanka's economy depended on tourism due to Easter bomb blasts in
churches in Colombo in April 2019, and COVID-19 lockdowns resulted in the number of
tourists leading financial crisis. They could not import necessities such as food and fuels,
and inflation was surmounted. The Sri Lankan government announced massive tax cuts to
reduce the income of Sri Lanka, like banning chemical fertilizers from promoting organic

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farming. As a result of this country's leading rice crop failing, Sri Lanka's revenue
plummeted, and the government ran out of money to import necessities.
Sri Lanka was facing the worst crisis since 1948 when Sri Lanka became independent, and
an unbalanced balance of payment arose. Sri Lanka is suffering a problem due to a severe
Balance of Payment. It is also the result of the historically imbalanced structure of the
economy of Sri Lanka. Sri Lanka's 26-year civil war ended in 2009. During that time, GDP
was 8-9% till 2012. After 2013, global commodity prices fell, exports went slow, imports
surged, and the average GDP halved. During the war, Sri Lanka's budget was a deficit. The
global financial crisis of 2008 depleted the foreign exchange reserve, which led to
borrowing $2.6 billion from IMF and, in 2016, another $1.5 billion from IMF. Quick
implementation of ill-advised obligations ahead escalated the condition of the economy.
The government expenditure raised due to this fiscal deficit exceeded 10% in 2020-21, and
the debt-to-GDP ratio increased by 119% in 2021 from 94% in 2019. In Sri Lanka,
presently, inflation is rate15%, and it is assumed to be 17.5% in the future.
1.1 BACKGROUND OF THE STUDY
The Sri Lanka crisis had been marked out by high foreign debt, high inflation, shortage of
necessities, declined foreign currency reserves, devaluation of the currency, and several
lockdowns during the pandemic, which contrarily affected the country's economic growth.
This crisis has been due to the mismanagement of government finance and massive tax cut
during the wrong time with the impact of a pandemic. The forecasted growth of Sri Lanka
was 5%, resulting in the development of Sri Lanka's economy decreasing by 1.8% from
December 2021- March 2022, with a growth rate of 3.7%.
NUMBER
YEAR
GDP
GROWTH
%
1.
2016
4.5%
2.
2017
3.6%
3.
2018
3.3%
4.
2019
2.3%
5.
2020
-3.6%
6.
2021(forecasted)
3.7
1.1.1 ECONOMIC GROWTH OF SRI LANKA
Source: The Times of India

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In February 2022, Sri Lanka was left with only around $2.31 billion in foreign reserves
with a debt payment of $4 billion, which indicates the sensibility of debt default. This debt
also included a $1 billion international sovereign bond with a maturity date of July 2022.
Sri Lanka's retail inflation was 15.1% in February 2022, and food inflation was 25.7%,
probably higher in a decade. This caused a shortage of necessities like a cup of coffee,
which now costs Rs 100.
1.1.2 INFLATION RATE %
Source: The Times of India
1.1.3. SRILANKA INDICATORS
NO.
INDICATOR
2019-2020
2020-2021
%
CHANG
E
1.
REAL GDP GROWTH
2.3
-3.6
-258.27%
2.
GDP
83.98
80.70
-3.90%
3.
GDP BASED ON PPP
297.02
289.89
-2.40%
4.
GDP PER CAPITA
3,852
3,679
-4.49%
5.
GDP PER CAPITA BASED ON PPP
13,623
13,215
-3.00%
6.
INFLATION RATE
4.3
4.6
5.90%
7.
UNEMPLOYMENT RATE
4.8
5.8
20.83%
8.
CURRENT ACCOUNT BALANCE
-1.8
-1.1
-37.89%
9.
CURRENT ACCOUNT BALANCE
AS A SHARE OF GDP
-2.2%
-1.4%
-35.35%

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10.
GOVERNMENT GROSS DEBT AS A
SHARE OF GDP
86.8
100.1
15.29%
11.
POVERTY RATE
1.9
2.9
-52.63%
12.
INTERNATIONAL RESERVES,
INCLUDING GOLD, IN THE
CURRENT PRICE
7,648,305,273
5,663,994,385
-25.94%
13.
AIR TRANSPORT FREIGHT
394.1
226.5
-42.53%
14.
EXPORT
19,414,322,724
13,082,799,673
-32.61%
15.
IMPORTS
24,561,990,206
18,271,335,897
-25.61%
16.
NUMBER OF TOURIST ARRIVAL
2,027,000
540,000
-73.36%
2. REVIEW OF LITERATURE
Danylyshyn (2020) concluded in the study of the economic crisis due to Covid 19
concerning Ukraine revealed that to revamp, it is necessary to adopt pre-set financial
practices instead experimenting. It was further suggested for immediate effort from the
government for reindustrialization and demand simulation to increase demand for
domestic products. A change in macroeconomic policy and reassessment of the same was
also suggested.
Guarria & Wang (2011) studied the effect of the crisis on libraries in the USA and
revealed that personnel and materials were the most affected. Further, the equipment and
professional development were believed to be affected. The need was to serve better with
lesser funds and people. Even the condition of that weak economy, lesser recourses, and
higher dependence fuelled job-related stress. It was concluded that contraction was for a
more significant period than the Second World War era.
Julian (2000), studying the impact of the crisis on the Thai economy with the new
constitution and efforts from the government, a positive change was noticed in exports,
trade balance, and current account with a downward shift in baht as opposed to the
expectation of poor conditions in 1998 and 1999.
Okumus & Karamustafa (2005) conducted a study to see the impact of the economic
crisis on the tourism industry of Turkey through interviews and four sectioned
questionnaires (including was the event predicted, precautions taken, actions taken
afterward, its impact, and further availability of the respondent). It was evident that they,
including the government, were not prepared for the crisis, and even the solutions they had
were proactive only, like cutting costs, being conservative, and being cautious about
investment. They took actions like higher marketing efforts and rechecked contracts and
agreements. Almost half of the respondents (46%) believed the crisis had a positive impact.
The adverse effects included reduced demand, hardship in loan collection, increase in cost,
delays from the government, stressful working conditions, etc. on the other side few
positive impacts were restructuring and new management techniques, increased
confidence, increased foreign demand, etc.
Otache (2017) focused on recovering the Nigerian economy from recession and revealed
that while all sectors suffered, only agriculture and telecommunication were unaffected.
Besides government initiatives, economic diversification was mainly suggested.
Agriculture plays a significant role in Nigeria, and Nigeria has unutilized land though the

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government was not considering it. Excessive demand for white-collar jobs and
unwillingness to agriculture from the youth resulted in unemployment. Agriculture
produces livelihood and provides the raw material for other businesses. In contrast, the
agripreneurship will provide a livelihood for the owners and employees and ultimately
help to revamp.
Silva (2021) found that the Coronavirus pandemic is perhaps the most exceedingly awful
scourge in late history. The plague impacts numerous nations, and Sri Lanka is another
nation experiencing pestilence. The pestilence is influencing the economy in multiple
ways. It centers around what the Coronavirus pestilence has meant for Sri Lanka's
economy, business, Gross domestic product, travel industry, and poverty. Further, steps
should be taken to control the spread of the plague and re-establish the economy. Or on
the other hand, it might require a very long time for the economy to recuperate.
Sukharev (2020) found in the study of risk and damage assessment of economic crisis due
to COVID- 19 suggests that with the considerable damage in terms of GDP losses and
investment dynamics, economic damage can be controlled through changes in
macroeconomic policies and well-regulated financial markets. Further, the industries that
benefited due to the pandemic and the supporting sectors of medicine, like agriculture,
internet, communication infrastructure, etc., should be considered.
Wynen & Beeck (2014) concluded that the Federal Employee Viewpoint Survey study
revealed that during the crisis, pay was the main factor for turnover intention as opposed
to age and gender. The training assessment was also found to be unsatisfactory for
employees. Further merit-based promotion and work-life imbalance led to leave.
Yurdakul (2014) found in a study of macroeconomic factors that may lead to a financial
crisis it's been evident that political instability, increase in non-performing loan, and
unemployment leads to the problem. On the other side, an increased growth rate is at the
rescue. Further, any adverse change in the foreign exchange rate, interest rate, or/ and
inflation rate would result in a crisis.
3. OBJECTIVES OF STUDY
The objectives of the present study are as under:
❖ To understand the root cause of Sri Lanka's suffering from the economic crisis.
❖ To know the impact of the financial crisis in Sri Lanka.
❖ To analyze the effects of COVID-19 on the economy of Sri Lanka.
❖ To assess what can be a better way for future economic recovery.
4. VARIOUS EXPLANATIONS FOR THE CRISIS IN SRI LANKA
There are numerous clarifications for the Lankan emergency. An issue exists in the
country. Past approach, there were political variables outside Sri Lanka's reach, which
individuals allude to as destiny. The Sri Lankan populace likewise accepts that China is
answerable for most of the issues in Sri Lanka. We should start with the approach. The
circumstance found presently is the consequence of long stretches of a botch. Sri Lanka
has an essential issue. Imports surpass sends out, spending surpasses profit, and the nation
encounters an import/export imbalance.
Furthermore, there is a financial plan deficiency. There is a twofold obligation. It is an
optimal catastrophe waiting to happen. The reaction of Sri Lanka to this fiasco has been
sad. Rather than diminishing its deficiency, it has expanded its obligation. A lot of cash
was acquired by Colombo from far-off nations and organizations. Presently, Sri Lanka's

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obligation to Gross domestic product proportion is 111%, implying that it owes more than
it produces. The Asian Advancement Bank hailed this issue in 2019. It asserted that the
country's public uses surpassed its public pay and that its development of tradeable labor
and products was deficient.
5. CAUSES OF THE SRI LANKAN CRISIS
5.1 TAX REDUCTIONS AND MONEY CREATION
In 2019, they lobbied for the official political race. As per current government political
race guarantees, they mean to curtail government expenditures assuming that they are
reappointed and guarantee that individuals will settle fewer charges. In this situation, how
might the nation bring in cash? Both the electors and the current government won't ever
annoy. Due to the political decision in November 2019, the ongoing government was
chosen for office with over 52% of the vote, and a progression of critical tax reductions
followed. Because of Sri Lanka's ongoing President's approach of substantial tax
reductions, government income and financial arrangements have endured, bringing about
taking off spending plan shortfalls. Among these actions were the expanded tax-exempt
limits, which diminished the number of taxpayers by 33.5%, decreasing Tank to 8%,
lessening corporate expense from 28% to 24%, dispensing with the Compensation as You
Procure (PAYE) charge and forcing the 2% "country building charge" that supported
foundation improvement. Considering the significant decrease in charge income, rating
organizations have minimized the sovereign FICO score, making it harder to assume more
obligations. The rating organizations communicated concern. This way, Sri Lanka's state
cash safes will soon be vacant, and the nation may quickly hit rock bottom financially.
Because of this, financial backers escaped Sri Lanka, making it hard for the country to
enter global business sectors.
Albeit the ongoing President knew about the income misfortune in 2021, he looked at it as
"speculation" and didn't expect to increment charges for an additional five years. To cover
government consumption, the National Bank started printing cash at a record pace,
ignoring the appeal of the Global Financial Asset (IMF) to stop publishing money and, on
second thought, raising loan costs and expenses while diminishing uses. The IMF advised
that proceeding to print cash would break the economy. CBSL supposedly published
119.08 billion rupees in April 2022, and the most elevated sum provided details regarding
a solitary day for 2022. In 2022, the aggregate cash added to the monetary business sectors
raised Rs. 432.76 billion.
5.2 THE EXTERNAL DEBT OF SRI LANKA
Between 2010 and 2020, Sri Lanka's external debt increased by twofold. In 2019, its
foreign debt was about 42 percent of its GDP, but by 2021, it had risen to 119 percent.
With government reserves of US$2.3 billion as of April 2022, Sri Lanka plans to repay its
borrowers US$4 billion by the end of 2022. Despite claims to the contrary, the (ALI)-
Australian Lowy Institute noted that Sri Lanka was not caught in a Chinese debt trap
because its external debt to China represented only about 10% of total debt as of April
2021. International lenders account for most of Sri Lanka's foreign debt stock. Global
capital markets are owing a whopping 47 percent of Sri Lanka's total foreign debt stock.
International development banks hold a further 22 percent of Sri Lanka's foreign debt, with
Japan having the remaining 10 percent. In January 2022, the President's office stated that
it would ask China to delay paying off its debt during discussions with the foreign minister.
As of March 2022, China has not reacted formally.
According to the Global Credit rating agency, Sri Lanka's current financing sources are
insufficient to meet the country's debt service obligations, which are expected to total just

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over US$4.0 billion in 2021. Treasury auctions must be successful, according to
Bellwether, for Sri Lanka to resolve its financial issues and repay its debt. The foreign
exchange issue will be immediately rectified as soon as this is done. The government is
further in debt due to Treasury bills stocked with printed money that was up for auction
but failed. Bellwether argues that to fix the debt issue, Sri Lanka requires a solid fiscal
strategy, sound monetary policies, a tax rise to pay off debt, a drop in interest rates, and
the opening of imports, which would allow tax money to flow back into the government.
Raising interest rates and restricting domestic lending are efficient ways to raise money to
pay off foreign debt but doing so continuously for several years is unrealistic. Although it
will be a complex procedure that may or may not succeed given existing philosophies,
investors may be able to rebuild trust if their foreign reserves increase after debt repayment.
The government declared an economic emergency in September 2021 due to declining
national currency exchange rates, growing inflation due to rising food prices, and
pandemic travel restrictions that further decreased income. As a result, Sri Lanka's foreign
reserves fell from March 2022 to US$1.9 billion, which isn't enough to cover US$4 billion
in foreign debt obligations and US$1 billion in ISB-International Sovereign Bond
payments for the year 2022. The national inflation rate (NIR) increased to 17.5 percentage
points in February 2022, according to the (NCP)National Consumer Price Index. The
government returned USD 500 million in International Sovereign Bonds that were due in
January 2022, despite general advice from economists and other professionals urging the
government to delay payment of its ISBs to protect foreign reserves. On April 12, 2022,
Sri Lanka said it would default on its 51 billion U.S. dollar foreign debt.
The national inflation rate (NIR) increased to 17.5 percentage points in February 2022,
according to the NCP [National Consumer Price Index]. The government repaid USD 500
million in International Sovereign Bonds that were due in January 2022, despite general
advice from economists and other experts for the government to delay payment of its ISBs
to protect foreign reserves. On April 12, 2022, Sri Lanka announced that it would default
on its 51 billion U.S. dollar foreign debt.
5.3 AGRICULTURE
The current administration made another error in April 2021. According to a recent
announcement, Sri Lanka will only permit organic farming and outlaw all agrochemical
and inorganic fertilizers. According to the government, this will be good for your health.
A lot of detractors rolled their eyes. Many understood that lack of funding, not health, was
the real problem. By forbidding the import of fertilizers, Sri Lanka was preserving its
foreign reserves. However, this affected agricultural output. Millions of dollars were lost
just from the reduction in tea production brought on by the ban on fertilizers.
Additionally, the nation was forced to import rice due to a 20% decrease in rice production
in the first six months. Tea farmers said the industry was critical and that organic farming
was ten times more expensive and produced only half as much as conventional farming.
Despite the advisor's support, the proposal disregarded the farming and scientific
communities' objections. They foresaw a collapse in agriculture due to the national
currency's depreciation, which harmed the tea industry. The population anticipates living
in poverty and going without food due to the ban on chemical fertilizers and pesticides.
The government gave up on its plan to establish the first organic farming nation in the
world in 2021 due to rising food prices and opposition to the scheme. Even though some
restrictions were lifted, urea imports are still forbidden. During peace, Sri Lanka intends
to ration necessities.
5.4 TOURISM SECTOR

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The third-largest source of foreign exchange for Sri Lanka is the tourism sector, after the
remittances of its workers. Furthermore, this sector provides many jobs and substantially
increases the government's foreign revenue. The country is experiencing its worst financial
crisis, which has harmed tourism. India, Canada, and the United Kingdom warned citizens
about Sri Lanka's ongoing economic instability. Some European and Canadian nations
advised their citizens to stockpile food, water, and fuel in case of prolonged disruptions,
ensure there are enough medicines on hand because they might not be easily accessible,
and keep an eye on local media for the most recent information. The U.K. is Sri Lanka's
third-largest source of foreign tourists, behind Russia and India. China, the U.K., and India
make up the major markets. The economic crisis had a significant impact on the tourism
industry. The Easter 2019 bombings and the COVID-19 pandemic harmed Sri Lanka's
tourism industry. If borders were closed, travelers would stop coming, reducing the money
made from tourism. Thirteen percent of Sri Lanka's GDP comes from the tourism sector.
Source: https://srilankatourisminfo.com/explore-colombo/
Additionally, tourists are a source of foreign currency. Sri Lanka only managed to host
173,000 visitors in 2020. There were 2.3 million people. The void is noticeable. Sri Lanka's
tourism-related income will fall to USD 2.8 billion by 2021. According to a World Bank
report from April 2021, despite the COVID-19 pandemic's detrimental effects on Sri

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Lanka's economy and people's quality of life, the country's economy will rebound in 2021,
even though difficulties still exist. Positive recovery indicators are already visible. Proper
taxation has been encouraged to increase independence and prevent future high reliance
on foreign debt. It has been determined that the current social protection initiatives
designed to help unemployed people because of the debt crisis have been successful.
Economists predicted that for Sri Lanka's economy to recover from the current debt crisis
and achieve total financial recovery, the country would also need an export-driven growth
strategy and a properly structured taxation system.
5.5 TEA EXPORTS
Sri Lanka's economy is already struggling due to the ongoing tense situation between
Russia and Ukraine due to the Russian-Ukrainian War. Russia is Sri Lanka's second-largest
market for tea exports, so the Russian invasion of Ukraine in 2022 has further harmed Sri
Lanka's economy. Additionally, as most visitors come from Russia or Ukraine, these two
countries significantly contribute to Sri Lanka's tourism industry. The result is that the
Ukrainian crisis has halted Sri Lanka's economic recovery, which has negatively impacted
the tea and tourism industries.
5.6 EXPORT SECTOR
Leading textile companies, such as Zara, Mango, and H&M, have shifted their focus from
Lanka to Asian nations, including India, Bangladesh, Cambodia, and Vietnam, where they
have placed their orders due to the economic situation. After Sri Lanka's political and
economic conditions deteriorated, India saw a sudden rise in the demand for its tea and
textile exports. India's export market has grown significantly as a result. The capital of
Tamil Nadu's textile industry, Tirupur, and the tea gardens in Assam and southern India
are seeing an increase in international orders due to the island nation's economic and
political crisis, which has caused export demand to shift from Lanka to India. Tea and
clothing are two of Sri Lanka's top exports. Sri Lanka exports clothing to other countries
each year for $5.42 billion. Global brands have moved some orders from Sri Lanka to India
due to the ongoing crisis. Sri Lanka's export industry has suffered significantly.
5.7 ENTERTAINMENT & SPORTS
The biggest IPTV service provider in Sri Lanka, SLT PEO TV, has suspended the
transmission of foreign channels due to the global economic and dollar crises. The Indian
Premier League 2022 was also put on hold midway through because the host broadcaster,
Star Sports, could not be paid. Many Sri Lankan sports associations have been unable to
send teams to international competitions due to declining dollar reserves and other factors,
particularly given the proximity of upcoming multi-sport events like the Asian Games and
the Commonwealth Games. The entertainment sector and other media services are
predicted to suffer increasingly adverse effects from the economic crisis.
5.8 EDUCATION
Assume that after learning that exams will not be held, the person will not have any cause
to rejoice. The country's students' exams, a component of the continuous assessment
system, have been postponed indefinitely. In March 2022, many Sri Lankan schools
declared that they would indefinitely defer their term and mid-year exams due to a
nationwide paper shortage, primarily brought on by a lack of foreign currency to pay for
the paper. Term exams were supposed to be held across the entire Island on March 28,
2022, but this date has been canceled or postponed due to a lack of printing paper and ink
ribbons. The financial crisis in Sri Lanka will impact nearly 4.5 million students.

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Regrettably, frequent power outages have harmed online education. In addition to the
pandemic, the power crisis has negatively impacted students' physical and mental health.
5.9 MEDICAL
Due to crippling power outages and a lack of necessary medications, doctors in Sri Lanka
have warned that many people may perish as the nation's healthcare system teeters on the
verge of disintegrating. All planned procedures at the Peradeniya Teaching Hospital (PTH)
have been canceled due to a lack of medication. Many other hospitals have also stopped
routine surgeries, and many laboratories' diagnostic tests have been scaled back. In
addition, other state-run hospitals suffered from a lack of urgent life-saving medications.
The Medical Council of Sri Lanka (MCSL) warned that if supplies are not replenished
quickly, there will likely be many fatalities that will exceed the total death tolls from
COVID-19, the 2004 tsunami, and the Civil War. The medical crisis in Sri Lanka was
classified as an unexpected humanitarian crisis by the Singapore Red Cross Society.
Hospitals ran out of endotracheal tubes to ventilate newborns, infants, and children.
Medical professionals requested neonatal ETTs of various sizes from foreign Sri Lankan
communities. The (SLMA)-Sri Lanka Medical Association claims that all hospitals in
Lanka no longer have access to imported medical supplies or essential medications. The
hospitals had to sterilize and reuse endotracheal tubes to get oxygen into the newborns'
lungs. Doctors have been forced to use used and outdated medical equipment to treat
patients due to a lack of new supplies. It has also been claimed that doctors have performed
medical procedures using the light from mobile phones. Due to recurring power outages,
rural doctors have also been forced to sew wounds in the dark. There have also been reports
of a shortage of life-saving drugs for treating heart attacks.
5.10 INFLATION
Living expenses are increasing when Sri Lanka is experiencing an unanticipated economic
crisis. For February 2022, in Sri Lanka, the overall inflation rate was 17.5%. Food inflation
increased by 24.7% yearly, while non-food items increased by 11%. Local red chili
production increased by 60% from February 2021 to February 2022, local potato
production increased by 74.8%, and Nadu rice production increased by 64%.

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Source: https://publicfinance.lk/
6. IMPACTS OF ECONOMIC CRISIS
The President has been forced to declare a national emergency due to rising prices for
essential commodities, shortages of necessities, and rolling blackouts. Sri Lanka has
experienced several years of historically low government revenue, poorly timed tax cuts,
and the Covid-19 outbreak, negatively impacting the country's lucrative tourism sector and
international remittances. The government of Sri Lanka declared that this was the worst
economic crisis the country had seen in the previous 73 years. In August 2021, food
shortages were announced. However, the government denied that there were any food
shortages. The nation's energy minister acknowledged that the crisis might cause a
financial disaster. The new governor of the (CBSL) was chosen at the beginning of April
2022. When most 41 lawmakers left the ruling coalition on April 5, the alliance was
defeated in parliament. After the protests turned violent, the government also imposed
curfews.
Due to the economic crisis, fuel, cooking gas, and electricity consumption has decreased
due to a shortage of these resources. To save electricity, a finance minister has ordered all
government buildings to turn off all streetlights through the end of March 2022. Nearly
1,000 bakeries were forced to close due to a cooking gas shortage. Long lines have been
forming in front of gas stations recently. The situation has worsened due to an increase in
crude oil prices. To save energy, authorities across the nation have implemented daily
power outages. The government gave military orders to station soldiers at various gas
stations and fuel filling stations starting in March 2022 to ease crowding and simplify fuel
distribution. Violence and exhaustion combined to kill four people during this period.
March 2022 saw a seven-hour daily power outage that grew to ten hours by the month's

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end and fifteen hours at the start of April 2022. Daily newspapers stopped printing and
started publishing e-papers due to a shortage and an increasing price for paper. Sri Lanka's
hydroelectricity production has also suffered.
7. CONCLUSION
Once there is no longer a shortage of certain essential commodities, the Sri Lankan
government should take action to help the entire nation's economy recover. The
government must work with the Tamil political leadership to develop a plan for economic
growth in the ongoing crisis's severely affected eastern and northern regions. To limit
borrowing, especially sovereign borrowing from foreign sources, it would be preferable to
raise domestic tax revenues and cut government spending. Strict measures must be taken
to restructure the administration of grants and subsidies. India's Assistance: India should
not permit the Chinese to seize control of the expanding portions of Sri Lankan territory.
India ought to provide Sri Lanka with financial aid, advice on public policy, and
investments from Indian businesspeople. Indian businesses must create supply chains that
link the economies of India and Sri Lanka with products and services, such as tea exports
and I.T. services. More than any other nation, India must assist Sri Lanka in realizing its
potential and reaping the rewards of a secure neighbourhood. The Sri Lankan government
must ensure that the current crisis won't be exploited to increase trafficking and smuggling
or inflame tensions within the nation. Crisis as an Opportunity: Relations between India
and Sri Lanka can't be strained. India bears responsibility because it is a much bigger
nation. It must be patient and maintain close contact with Sri Lanka.
Additionally, it's critical to strengthen people-centred development initiatives while
circumspectly avoiding any meddling in Lanka's internal affairs. Due to the current
economic crisis, Sri Lanka is eager to implement significant financial and regulatory
reforms. The public should fully support these reforms because they will lessen the
likelihood of a future crisis and its effects. The Sri Lankan government should take action
to help the entire nation's economy recover. With the realization of the anticipated inflows
from bilateral partners and future debt-free inflows, it hopes that the foreign exchange
situation will quickly improve. Foreign exchange earnings from travel and tourism and
remittances are anticipated to increase soon. Shortly, it's expected that Sri Lanka's citizens
will experience financial relief.
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Mr. Shivam Tripathi
Research Scholar,
School of Doctoral Research and Innovation,
GLS University, Ahmedabad, Gujarat
Email: shivam.ks.1011@gmail.com
Orcid: https://orcid.org/0000-0003-2287-3825
Ms. Komal Sharma
Assistant Professor,
Asia Pacific Institute of Management,
Gujarat University, Ahmedabad, Gujarat
Email: sharma.komal0096@gmail.com
Orcid: https://orcid.org/0000-0001-9121-5362

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Ms. Rudri Pandya
Research Scholar,
S.D. School of Commerce,
Gujarat University, Ahmedabad, Gujarat
Email: p.rudri97@gmail.com
Orcid: https://orcid.org/0000-0003-4789-4622