Content uploaded by Yoganandham Govindharaj
Author content
All content in this area was uploaded by Yoganandham Govindharaj on Nov 24, 2023
Content may be subject to copyright.
SRI LANKA'S ECONOMIC ISSUES IN REGARD TO INDIA'S EFFORTS AND
SOCIO - ECONOMIC CHALLENGES HAVE AN IMPACT ON TAMIL NADU
– A THEORETICAL ASSESSMENT
Dr. G. YOGANANDHAM, Professor& Head, Department of Economics, Thiruvalluvar University
(A State University) Serkkadu, Vellore District, Tamil Nadu, India- 632 115.
Abstract
India gave Sri Lanka a USD 1 billion line of credit on March 18, 2022. Sri Lanka is going
through its worst economic crisis in 73 years. The entire public sector has ceased operations due
to the country's high inflation rates. Less than 1 billion dollars of Sri Lanka's estimated 2.4
billion dollars in foreign reserves are available. India's external debt was valued at $ 620.7 billion
at the end of March 2022. Sri Lanka's foreign debt is expected to reach $56.3 billion by 2020.
India has to control its debt-to-GDP ratio to prevent default. Sri Lanka's collapse is due to a
unique combination of economic and social problems. India needs to increase its 74-day oil
reserve storage capacity. The value of the Indian rupee fell 5.9% in 2022, further depleting the
nation's foreign exchange reserves.
Sri Lanka's policy errors have eclipsed India's recent economic achievements. Emerging
economies, particularly those in South Asian countries, are severely impacted by exogenous
shocks. India must offer financial support, policy recommendations, and investments from Indian
businesses to Sri Lanka. An orderly analysis of theories and viewpoints is provided in this work.
It exclusively uses secondary sources that provide data and information relevant to the problem
of the study. Secondary data and information are compiled using a range of publications,
including published and unpublished Materials. The University of Madras library, among others,
was used in the research. Examining theoretical aspects of Sri Lanka's economic problems in
light of India's efforts and how socioeconomic concerns affect Tamil Nadu is the main goal of
this study. The impact of the crisis on the Indian economy must be thoroughly studied from a
theoretical perspective.
Key words:
Economic Crisis, Public Sector, India's External Debt, Foreign Debt, Social Problems, Emerging
Economies, Financial Support, Investments and Gross Domestic Product.
ISSN NO : 1869-9391
PAGE NO: 1109
GIS SCIENCE JOURNAL
VOLUME 9, ISSUE 8 , 2022
SRI LANKA'S ECONOMIC ISSUES IN REGARD TO INDIA'S EFFORTS AND
SOCIO - ECONOMIC CHALLENGES HAVE AN IMPACT ON TAMIL NADU
– A THEORETICAL ASSESSMENT
Dr. G. YOGANANDHAM, Professor& Head, Department of Economics, Thiruvalluvar University
(A State University) Serkkadu, Vellore District, Tamil Nadu, India- 632 115.
Theme of the article
The Sri Lankan government stated in January 2021 that the nation was going through its
worst economic crisis in 73 years. India gave Sri Lanka a USD 1 billion line of credit on March
18, 2022, to help it through its current economic crisis. Many variables, not just one, have
contributed to the current economic crisis. India is Sri Lanka's closest neighbor. The two
countries have a long history of intellectual, cultural, religious, and linguistic interchange and
have maintained a strong relationship for almost 2,500 years. The economic crisis currently
affecting Sri Lanka has been the worst ever been. Essential goods are now so expensive that the
average individual cannot afford to buy them. In Sri Lanka, eggs cost 35 to 40 Rupees, rice costs
300 Rupees per kilogram, sugar is closer to 300 Rupees, chicken is 1000 Rupees, petrol costs
over 330 Rupees per liter, milk powder costs over 4,000 Rupees per kilogram, and even a cup of
tea costs 100 Rupees. When anti-Rajapaksa demonstrations became violent throughout the
nation, the government of Sri Lanka was obliged to enforce curfews, and a state of emergency
was later declared. A few days ago, protesters attacked a minister's car while stopping a bus of
visitors and demanding kerosene. There were fights that resulted in the burning of vehicles, the
destruction of government buildings, and numerous injuries. The situation was so bad that the
government of Sri Lanka had to place armed forces at fuel stations, and the island nation is
currently in complete anarchy.
The entire public sector in Sri Lanka has ceased operations due to the country's extremely
high inflation rates. While the rural areas lack any supplies, Colombo itself experiences daily
power shortages of 14 to 16 hours. The entire nation is in danger of shutting down because there
isn't enough fuel for the cars needed to transport the available supplies from ports to other parts
of the nation. The groundwork for the financial collapse was set in place far back in 2010, not
during the past few months or years. After the Sri Lankan Civil War, the military quickly became
a significant force in the nation, and several generals were appointed to the administration. At
ISSN NO : 1869-9391
PAGE NO: 1110
GIS SCIENCE JOURNAL
VOLUME 9, ISSUE 8 , 2022
this period, the Sri Lankan government began to take on debts without considering how to pay
them back. By 2019, it was 88% of the GDP, by 2021, it was 101%, and by March 2022, it had
reached 135% of the GDP with no clear cut plan for how it would be paid.
In actuality, less than 1 billion dollars of Sri Lanka's estimated 2.4 billion dollars in
foreign reserves are available to pay its lenders. This is significant because the government is set
to pay $7 billion this year, including repayment of a $4 billion IMF loan and other international
debts. In addition, it is anticipated to pay USD 1 BN in maturing sovereign debts for this year in
July. Due to its advantageous location in the Indian Ocean, Sri Lanka is not only our neighbor
but also a significant nation for India. India will undoubtedly be impacted in many different ways
by the current crisis in Sri Lanka. This study article mainly focuses on Sri Lanka's economic
issues in light of India's efforts and how socioeconomic issues affect Tamil Nadu. This design
makes the topic of the article immediately necessary and socially significant.
Statement of the Problem
The president of Sri Lanka, Gotabaya Rajapaksa, has resigned. The selection of a new
president began once the Sri Lankan parliament met. Sri Lanka's economy was middle-income
before the government began mismanaging it, and social indicators showed a steady
improvement. The coronavirus outbreak has posed some difficulties for the Indian tourism
sector, which must deal with these problems to prevent losing its main source of income. In
2018, Sri Lanka's GDP was 5.6% dependant on tourism income; by 2020, that percentage had
decreased to 0.8%. In Sri Lanka, the number of registered taxpayers fell by 33.5% after tax
reforms introduced by Mahinda Rajapaksa's government. India is also in the process of changing
its tax code. These measures should be implemented with caution. Sri Lanka's foreign debt is
expected to reach $56.3 billion by 2020, having more than doubled since 2005. Even though the
country needed to pay off $4 billion in debt by the end of 2022, the government's foreign
currency holdings were only $2.3bn.
India's external debt was valued at $ 620.7 billion at the end of March 2022. Five Indian
states have been labeled as being heavily indebted. India has to control its debt-to-GDP ratio to
prevent default, writes Prakash Chakravorty. Sri Lanka was the world's second-largest exporter
of tea before shoddy agricultural policies were put in place. As a consequence, Sri Lanka
imported rice worth $450 million in 2021. India should be self-sufficient in food production as a
ISSN NO : 1869-9391
PAGE NO: 1111
GIS SCIENCE JOURNAL
VOLUME 9, ISSUE 8 , 2022
major lesson from this predicament. About 1550 tonnes of food grain were lost during the
Covid-19 pandemic in the godowns of the Food Corporation of India.
This should be avoided at all costs. Russia is Sri Lanka's second-largest market for tea
exports and a significant source of tourism. India needs to increase its 74-day oil reserve storage
capacity. India currently depends on fossil fuels for the generation of more than 60% of its
electricity. India appears to be on the approach of a power catastrophe as a result of the ongoing
coal shortage. Sri Lanka's collapse is due to a unique combination of economic and social
problems. India's inflation rate rose to 7.79% in April 2022, which must be prevented at all
costs. The value of the Indian rupee fell 5.9% in 2022, further depleting the nation's foreign
exchange reserves. Industrial production and exports should be increased to meet the
government's industrial production target. In view of India's efforts and how socioeconomic
challenges have an impact on Tamil Nadu, this study article focuses mostly on Sri Lanka's
economic concerns. In light of this context, the article's issue is one that is urgently needed and
socially relevant.
Background
Sri Lanka's economy was at risk of failing in 2015. The government did not do a good
job of tackling the problems with the economy and the new threats. The Ministry of Finance
under Ravi Karunanayake was involved in a variety of acts that received widespread
condemnation. The contentious 2019 Central Bank Bill has been withdrawn by Sri Lanka's new
administration. The goal of the measure was to shield the Central Bank from political
interference. The newly formed party Sri Lanka Podujana Peramuna rejected the law upon taking
office in by-elections. Lebanon is the world's second country to default on its national debts,
following Sri Lanka earlier this year. The accumulation of unmanageable debt by successive
governments was a problem for both countries, resulting in severe economic disasters. Sri Lanka
needed a 2.6 billion dollar loan from the IMF in 2009.
The Methodology of the Article
This study is descriptive and theoretical in nature. This study provides an
organized examination of theories and points of view. This type of research entails
conceptualizing or expressing how a subject and its surroundings work, as well as investigating
or recreating the effects of those requirements. It only employs secondary sources containing
data and information pertinent to the study's problem. From a theoretical perspective, it is both a
ISSN NO : 1869-9391
PAGE NO: 1112
GIS SCIENCE JOURNAL
VOLUME 9, ISSUE 8 , 2022
descriptive and diagnostic design. A variety of reports, both published and unpublished
Materials, are used to assemble secondary data and information. In addition, a comprehensive
evaluation of the literature in the pertinent subjects was carried out using the libraries of the
University of Madras, Madras Institute of Development Studies, Connemara Public Library,
Vellore Central Library, and Thiruvalluvar University Library.
Objective of the Research Article
The main objective of this study is to examine theoretical aspects of Sri Lanka's
economic issues in view of India's efforts and how socio-economic issues affect Tamil Nadu. It
is essential to examine the crisis' effects on the Indian economy from a theoretical standpoint.
Review of Literature
The economic problems in Sri Lanka, according to
Biju Paul Abraham, Partha Ray
(2022),
are more widespread and are the result of a family-run political system and an economic
plan that placed a high priority on financial benefits. Due to travel restrictions, a drop in tourism,
the accompanying depletion of foreign reserves, and an increase in the cost of food and energy,
there was an economic collapse. Due to a shortage of food and fuel, the populace of the country
was forced to take to the streets in order to topple what they saw to be a corrupt and incompetent
government.
The Conversation (2022),
reports that while the price of sugar has climbed by 164%,
the price of food has increased by 160%. Burkina Faso has seen 76% inflation. A cooking gas
cylinder would cost more than half of one month's pay, if they were lucky enough to find one.
Another main objective is to reopen the shuttered universities and institutions. The economy
would continue to deteriorate if the incoming president cannot persuade China and India to offer
greater financial assistance.
According to
The Conversation
from 2022, the president of Sri Lanka resigned in the
most humiliating way imaginable. Since stepping down at this point would withdraw his
immunity from prosecution, he departed the country, first traveling to the Maldives and then to
Singapore. The president of Sri Lanka, Mahinda Rajapaksa, has reportedly left the country and is
on his way to Saudi Arabia, Dubai, and the Maldives. It has been suggested that he may be
attempting to enter Saudi Arabia right now, which is strange given his previous condemnation of
Islamophobia. According to
The Conversation (2022)
, Sri Lanka's political and economic
condition is progressively getting worse. At least nine people have died and more than 200 have
been hurt as a result of clashes this week between government loyalists and critics. Based on the
ISSN NO : 1869-9391
PAGE NO: 1113
GIS SCIENCE JOURNAL
VOLUME 9, ISSUE 8 , 2022
state's answers, the island is unable to protect its citizens during its worst economic crisis since
becoming independent. Sri Lanka is going through its biggest economic crisis since obtaining
independence from British rule 70 years ago. Because of the government's bad economic
management, the country is in danger of becoming bankrupt. Artificial fertilizer bans led to
lower agricultural output, plantation closures, employment losses, and food shortages. With
Russia and Ukraine functioning as important tourist destinations, COVID has also wreaked
havoc on the tourism industry.
According to
The Conversation (2022),
there have been numerous protests in Sri Lanka as
a result of a severe economic crisis. A kilogram of rice now costs more than Rs205 (£0.46), up
38% from January and more than double the price of a year ago. The protests are taking place in
front of the island's dark and unresolved historical backdrop. The president, who comes from a
well-known family dynasty in Asia, is the subject of mounting hostility. The government
attempted to turn off social media, but in reaction to criticism, it quickly undid it. Many people
are calling for the president to step down. The government and larger government are currently
in turmoil as a result of the fatal clashes between police and protesters earlier this month.
Description of the economic crisis in Sri Lanka – An Overview
Due to poor economic management, corruption, and an agricultural catastrophe, Sri
Lanka is currently experiencing an unparalleled crisis. To begin with, a number of policy errors,
such as enacting tax cuts, severely hurt government revenue. This was a component of a populist
platform that was used to win the 2019 presidential election and the parliamentary elections that
followed in 2020. Budget deficits increased from 5% in 2020 to 15% in 2022 as a result of the
tax cuts. Poor monetary policies have caused increasing inflation, which has sparked discontent
and riots because the average Sri Lankan cannot afford the high cost of life. Furthermore,
because its $2.3 billion in foreign reserves as of March 2022 are insufficient to meet its
obligations, the country faces the possibility of filing into bankruptcy. The national inflation rate
increased to 17.5% in February 2022. Sri Lanka is heavily reliant on imports to supply its many
needs, including those for petroleum, food, paper, sugar, lentils, pharmaceuticals, and
transportation equipment. The absence of foreign money indicates that the country does not have
the resources to import these things.
ISSN NO : 1869-9391
PAGE NO: 1114
GIS SCIENCE JOURNAL
VOLUME 9, ISSUE 8 , 2022
A serious food shortage coexists with the economic turmoil. A surge in food costs was
brought on by currency depreciation. On August 31, 2022, the government was compelled to
declare an economic emergency. The right to seize food stocks classified as staple foods,
assistance in setting staple food prices, and assistance with food rationing were among the
powers granted to the authorities. Following a string of local protests, the army was called in to
assist in better managing food rationing.
The crisis's underlying causes
Sri Lanka is currently experiencing one of its biggest economic crises since gaining
independence. The situation in the country is dire because the economy is in default on its
foreign debt. With inflation reaching an all-time high, the people is having a lot of difficulty
purchasing basic necessities. Following ferocious public protests, the Sri Lankan prime minister
has resigned. Sri Lanka has long been a high fiscal deficit economy due to long-run historical
imbalances. From the 1950s to the late 1970s, it was an inward-looking closed economy with
low growth. Following that, there was ethnic conflict between the majority and the minority. The
conflict between the majority Sinhalese and the minority Tamils, which lasted for over three
decades, increased the fiscal deficit even further. The government in the post-war period ended
up accepting substantial loans from China and many other multilateral institutions in order to
finance its quest for world-class infrastructure without giving debt servicing a second
consideration. Prior to the 2019 elections, Mahendra Rajapaksa included significant tax cuts in
his plan, which caused temporary economic imbalances and a steep fall in income.
As a result, Sri Lanka's ability to pay for imports was considerably reduced, which
ultimately led to a 70% fall in the country's foreign exchange reserves. Due to its significant
infrastructure debt, Sri Lanka attempted to imitate the China-led model of economic growth and
development by building its infrastructure quickly. Large, protracted loans were taken without
considering the projects' financial and ecological feasibility in order to meet the development
goals. As a result, there was a spiraling debt and interest situation. Sri Lanka's economy is mostly
driven by the tourism industry, but it is in decline. The Easter bombing in 2019 precipitated a
significant decline in tourist arrivals, which was subsequently exacerbated by the Covid-19 issue,
resulting in significant job losses and lost revenue.
Poorly planned out policies of the powerful regime, In 2021, the Sri Lankan government
promised to only use organic farming, abandoning the use of chemical fertilizers and High
ISSN NO : 1869-9391
PAGE NO: 1115
GIS SCIENCE JOURNAL
VOLUME 9, ISSUE 8 , 2022
Yielding Variety (HYV) seeds simultaneously. The choice resulted in a sharp decline in grain
production, forcing the government to purchase food and exacerbating the debt and balance of
payments problems. Covid-19 exacerbated Sri Lanka's already precarious economic situation.
Tea and rubber exports fell even further, and the tourism industry, which had several back-and-
forth connections, ceased operations. The war trapped Sri Lankan workers, and many of them
lost their jobs. They were forced to return home without a job. As a result, remittances fell
precipitously. Government spending increased while revenue fell.
As a result, Sri Lanka's sovereign rating has declined, making it more difficult to obtain
loans from multilateral institutions. It would also impede the inflow of foreign investment in the
near future, resulting in a downward spiral in the economy. The island economy's output basket
is rather small and primarily consists of rubber and tea. Remittances and tourism are two other
important drivers of the economy. These contributors are all extremely elastic, and their costs
vary greatly. Sri Lankan society is aging due to an aging population, and the demographic
dividend epoch has already gone. The aging population has not been able to be compensated by
the rise in economic productivity, keeping the production base limited. Effects of the Russia-
Ukraine war t he price of commodities globally has increased as a result of the war.
The crisis has an impact on the economy
Economic uncertainty results from the crisis, low foreign exchange reserves, and large
external debt, which prevent the economy from paying for imports of products like food,
gasoline, and other necessities. High inflation rates and the current economic crisis have caused
food prices to rise by 25%, with inflation approaching 17.5 percent overall. Public unrest on the
streets as well as severe food and fuel shortages have resulted from this. Food and fuel shortages
are a severe problem since the island nation's production options are too limited to meet domestic
demand. Food grains, fuel, and other critical imports are in short supply. Health care is in
disarray, 85% of the nation's medical needs are met by imports. Medical supplies, anesthetics,
implants, and suture materials are in low supply nationwide. The doctors' association has issued
a warning that the healthcare system may implode in the absence of prompt assistance.
Falling employment levels have made unemployment a typical occurrence in practically
every household. The number of poor people has increased, and the government has determined
that a sizable portion of households are in serious financial trouble. Poor macroeconomic
indicators are causing a reduction in foreign investment, which has lowered the sovereign rating.
ISSN NO : 1869-9391
PAGE NO: 1116
GIS SCIENCE JOURNAL
VOLUME 9, ISSUE 8 , 2022
As a result, there has been a stagnation in new foreign investment, which has a negative impact
on income and employment levels. As a political crisis develops, there is a growing sense of
dissatisfaction among the population about the existing leadership. Civil society has planned
huge gatherings to topple the administration. The Prime Minister's resignation means that the
government will now fall, but demonstrators want the President to quit as well.
Sri Lanka suffers from a food scarcity due to agricultural policy
The Sri Lankan government decided to set an example by producing food entirely
through organic farming. To accomplish this, they will phase out the use of chemical pesticides
and fertilizers nationwide in June 2021. Despite the program's widespread acceptance, the
scientific and agricultural communities harshly criticized it for a variety of reasons, including:
The farming sector, which was centered on the tea business, may be experiencing a collapse.
Because organic farming requires a lot of rain, switching from chemical farming to organic
farming would be impossible.
Furthermore, organic farming is more expensive and yields far less than chemical
farming. Regular farmers would thus oppose the decision to switch to organic farming. The
decision caused a 50% decrease in agricultural output. Food shortages made the predicament
worse. The tea sector was the most affected as a result. The government was compelled to import
food as a result. A declining national currency exchange rate, growing inflation as a result of
high food prices, and pandemic tourism restrictions that further decreased the country's income
made the situation worse. Rationing of products during peacetime was instituted by the
government due to the severe food scarcity. In November 2021, Sri Lanka was compelled to
abandon its plan to become the first country in the world to practice organic farming. This led to
ongoing hikes in food prices as well as weeks of unrest and riots.
India's current role
Providing credit India has so far contributed USD 1.4 billion in aid, which is made up of
a USD 400 currency swap, a USD 500 loan deferral, and a USD 500 Line of Credit for
essentials. India has additionally provided the island nation with USD 1 billion in short-term
concessional loans to help it cope with an extraordinary economic crisis. India has also
contributed shipments of food and grains to Sri Lanka to help the country get through the
difficult times. India and Sri Lanka have signed a SAARC currency swap agreement. This will
assist Sri Lanka in building up its valuable foreign exchange reserves.
ISSN NO : 1869-9391
PAGE NO: 1117
GIS SCIENCE JOURNAL
VOLUME 9, ISSUE 8 , 2022
India-Sri Lankan relations have been impacted by the economic crisis in Sri Lanka
The relationship between India and Sri Lanka, which had been strained for decades, has
been given new life by the current economic crisis, which China has exploited to its advantage as
a major priority in Sri Lanka's foreign policy. In this situation, Sri Lanka requested aid from both
China and India. China hasn't shown to be as trustworthy in this situation as India has. In order to
balance out China's growing influence in the Indian Ocean, India has seized this chance to
strengthen its commercial footprint there. As a consequence of India's $400 million credit line in
China and $1 billion in March, Sri Lanka may start to import the majority of its goods from
India. India has been able to further its geopolitical objectives by expanding its presence in Sri
Lanka's key strategic locations owing to the crisis.
India is assisting Sri Lanka's economic problems by ensuring food and energy security
India supports Sri Lanka's economic problems by providing food and energy security,
Recently, India and Sri Lanka decided to explore efforts on food and energy security in a four-
pronged manner in order to help Sri Lanka deal with its economic problems. Sri Lanka declared
an economic emergency earlier in 2021 as a result of rising food costs, a weakening currency,
and fast declining foreign exchange reserves. The situation was made worse by the nation's
excessive reliance on imports for necessities including sugar, medicine, fuel, pulses, and grains.
An attempt by the government to become the first nation to entirely adopt organic farming
backfired when artificial fertilizers were outlawed in April. 90 percent of Sri Lanka's farmers,
according to a report, utilize chemical fertilizers to improve their crops.
Due to the change, domestic food production drastically decreased, which increased food
prices. However, the harm had already been done. The decision was reversed after months of
widespread farmer protests. February saw a sharp increase in food inflation to 25.7%. Now that
the crisis has started, Indian exporters are feeling the effects. The Sri Lankan government has
been unable to afford to move containers between terminals, so thousands of containers supplied
from India, both those for Sri Lanka's domestic use and transshipment cargo, have been lying
uncleared at the Colombo port. This has caused some goods bound for Sri Lanka to accumulate
at Indian ports as a result. Colombo port is a transhipment hub, hence India too depends on it
heavily for international trade. The port is responsible for 60% of India's transshipment goods.
The overall volume of trans-shipment at the port is made up, in turn, 70% by goods with a
connection to India.
ISSN NO : 1869-9391
PAGE NO: 1118
GIS SCIENCE JOURNAL
VOLUME 9, ISSUE 8 , 2022
India can be affected by the main causes of Sri Lanka's economic crisis
The island nation's current predicament could seriously impede the Colombo Port's
ability to operate normally if it continues. India would suffer as a result of this. More than 30%
of India's container traffic and 60% of its trans-shipment is handled by the port. Over 1,115
Indian troops were killed during the fight between the LTTE and the Indian Army. As the IPKF
was completely involved in the fight, the Indo-Sri Lankan Accord, which had previously been
unpopular among Sri Lankans for giving India a significant influence, came under fire from
nationalists. Inadequate financial sector regulation, exorbitant CEO remuneration salaries and
bonuses, stagnant real wages, rising inequality, and debt-financed consumerism are only a few of
the root causes of the crisis that have not been addressed. Sri Lanka is India's principal trading
partner in South Asia. India is Sri Lanka's main trading partner abroad. Trade between India and
Sri Lanka rose significantly after the FTA was put into effect in March 2000.
Influence of China as a Threat
There is a risk that China could expand its influence in the island nation given the current
economic condition and the fact that Sri Lanka has requested 2.5 billion USD in emergency aid
from China. The last few years have seen considerable effort on the part of the dragon, but due to
Indian diplomacy, things have not turned out as it had hoped. Currently, however, things are
different. Due to Sri Lanka's strategic location, India must be wary of any attempts by China to
influence Sri Lanka.
Regarding the Economy
Even though less than $1 billion worth of goods are imported into India from Sri Lanka
each year, there is a significant economic hazard related to the management of Indian Trans-
Shipments. Nearly 48% of our international cargo is transshipped through Sri Lanka, which is a
significant hub. Many Indian cargoes are currently stranded in Sri Lankan ports as a result of a
lack of labor, an absence of cars to transfer our containers, the closure of port infrastructure, and
Influence of China as a Threat. Not only that, but variables geared toward India account for close
to 22% of Sri Lanka's overall GDP. These include trade, tourism, and remittances. The current
situation in Sri Lanka will undoubtedly have an impact on these aspects.
ISSN NO : 1869-9391
PAGE NO: 1119
GIS SCIENCE JOURNAL
VOLUME 9, ISSUE 8 , 2022
Migration Issues
Many Sinhala refugees cross the Palk Strait and the Gulf of Munnar from the island
nation to India whenever there is a political or social crisis in Sri Lanka. The first explanation is
that they have been related for many generations and come from the same Tamil community.
The second is that the ethnic Tamil community's faith in the Sri Lankan government has
diminished in the wake of the country's civil war. India might struggle to handle an invasion of
this size. However, compared to the 1990s, it will be worse this time. India needs to create a
robust policy to handle the issue of the enormous refugee population.
Intensifying Sri Lankan Rebellion
Things are still simmering inside, notwithstanding Sri Lanka's assertion that it had
eradicated Tamil rebel groups by 2009. Since Tamils are largely neglected at the moment, they
do not yet have a meaningful representation in the administration. Already unemployed rebels
looking for a cause to stoke the fire may find new life thanks to the current economic crisis. We
cannot rule out the chance that other dissident groups, besides Tamil rebels, such as the
numerous dissident groups among the ethnic Sinhalese people, would turn to violence during this
crisis.
Crisis on the human aspect
There is a greater risk of a widespread humanitarian crisis looming over Sri Lanka, which
only has one near neighbor, India. Food, medicine, and law and order are all lacking, and India
will be entirely responsible for providing assistance in the event of a major humanitarian crisis
like a civil war. India will serve as a conduit for the flow of international aid, which will strain
our economy even more. Both favorable and unfavorable effects will result from this. India
needs to treat Sri Lanka with the utmost caution. India cannot permit anyone to profit from its
links with Sri Lanka since India has economic, social, and geopolitical interests there. The
crucial days are approaching.
Sri Lanka's economic turmoil teaches India important lessons
Sri Lanka's economic crisis has been building for a while, and recent geopolitical events
have pushed the nation toward instability and bankruptcy. The Sri Lankan government brought
this crisis upon themselves by making careless borrowings that even exceeded the nation's GDP.
India can learn from Sri Lanka's mistakes. Sri Lanka's economic crisis has been building for a
while. The Sri Lankan government brought this crisis upon themselves by making careless
ISSN NO : 1869-9391
PAGE NO: 1120
GIS SCIENCE JOURNAL
VOLUME 9, ISSUE 8 , 2022
borrowings. India has nearly $600 billion in foreign exchange reserves, which is enough to
cover goods imports for about a year. If India compares the situation in our country, then we are
currently safe. India's external debt has increased, but the external debt-to-GDP ratio has fallen
from 22.4 percent in 2013 to 20 percent in 2021.
Despite a drop in GDP caused by the COVID outbreak, the government deserves credit
for maintaining this stance. India's manufacturing capacity utilization is still below the 10-year
norm. There are timely policy interventions, such as limiting exports and managing the money
supply by raising benchmark rates. Concerns about inflation are the main reason the World
Bank, and other organizations have lowered growth projections. The rupee has performed well
compared to other currencies like the British pound and the euro. Other variables affecting this
fluctuation include the current account deficit and capital flight. In India, power-hungry
politicians are unfazed by the devaluation of the rupee. The chief ministers of India's 34 states
should stop using the center as a bargaining chip to extract concessions from the federal
government. Some previously announced initiatives, such as the PLI for the manufacturing
sector, have the potential to drive growth and should be pursued by the government.
Tamil Nadu is being affected by the crisis
Tamil Nadu, f acing the effects of the crisis, With the suspected unlawful entry of 16
people from Sri Lanka, including six women and seven children, Tamil Nadu may have already
begun to feel the effects of the crisis. During the 1983 anti-Tamil pogrom, over three lakh
refugees lived in Tamil Nadu. Irrespective of the motivations behind those who have entered
Tamil Nadu illegally, the authorities in both India and Sri Lanka should take precautions to
prevent the current crisis from being exploited to increase trafficking and smuggling activities or
inflame feelings in any nation. A road map for the political devolution and economic growth of
the war-torn northern and eastern provinces, among the regions severely affected by the current
crisis, should be developed by Mr. Gotabaya Rajapaksa during the scheduled meeting with the
Tamil political leadership.
According to some experts, Sri Lanka should restructure its debt and create a three-year
payback plan. Saving money in this way would also ease the burden on Sri Lankan civilians,
who are now suffering from shortages of imported items like milk powder, gas, and petrol. Sri
Lanka is overly dedicated on paying off its debt. It is more advisable to put off debt repayment in
order to attend to urgent financial demands. In contrast to the $4.5 billion debt held by the central
ISSN NO : 1869-9391
PAGE NO: 1121
GIS SCIENCE JOURNAL
VOLUME 9, ISSUE 8 , 2022
government, Fitch believes that the Sri Lankan central bank would also need to secure $2.4
billion to assist state-owned and private businesses in the nation in meeting their debt obligations
in 2022. A further $20 billion is required by the nation for imports of basic necessities like food,
fuel, and export-related intermediate products. A $1.5 billion yuan currency swap from China
helped the reserves, which had been at a critical level for months, increase to $3.1 billion at the
end of December. The crisis ought to be a chance for New Delhi and Colombo to work out a
resolution to the long-running fisheries issue in Palk Bay. As we rigorously avoid interfering in
Colombo's domestic problems, it is imperative that we step up our people-centered
developmental initiatives. For India to protect its strategic interests in the Indian Ocean region,
the Neighborhood First policy with Sri Lanka must be maintained.
Future Directions for Sri Lanka
The Sri Lankan economy is experiencing one of its worst-ever economic crises. Sri
Lanka's economy ranks 132nd in terms of economic freedom with a score of 53.3, according to
the 2022 Index. Significant fiscal consolidation is required, supported by reforms to revenue
management. Political instability has been brought on by widespread anti-government sentiment
in Sri Lanka. A significant Balance of Payments (BoP) issue has caused the Sri Lankan economy
to be in crisis. International capital markets, which received 47% of Sri Lanka's total external
debt, are responsible for the majority of it. The Sri Lankan rupee has lost more than 80% of its
value due to the Covid-19 pandemic. Sri Lanka's foreign exchange reserves have dropped by
70% over the last two years.
China's Debt Trap Policy played a significant role in economic instability in Sri Lanka.
The government's overnight ban on chemical fertilisers and pesticides has sent food prices
soaring. India may find it difficult to handle a large influx of Sri Lankan refugees. The steps
India can take include an increase in agricultural productivity, better implementation of reforms
and reviving the tourism sector. The crisis was made worse by the country's strong reliance on
imports for basic items. India is Sri Lanka's biggest trading partner, and its largest source of
foreign direct investment. The Central Bank should stop the high inflation rate of around 18%,
and this is especially important in the case of food inflation above 25%.
In order to restore agriculture, the import prohibition on agrochemicals should be lifted
immediately. Organic farming should be gradually introduced throughout the island to prevent
supply shocks. Protesters are demanding the President's resignation in addition to the PM's, who
ISSN NO : 1869-9391
PAGE NO: 1122
GIS SCIENCE JOURNAL
VOLUME 9, ISSUE 8 , 2022
has already submitted his resignation. An interim government must be appointed as soon as
practicable by the President. In 2021, it is anticipated that the fiscal deficit will have been under
control and managed at 11.1 percent of GDP. Macro tools should be used more proactively
rather than reactively to use macroeconomic tools to reduce any shocks to the growth and
stability of the economy. Sri Lanka should diversify its exports rather than relying solely on a
small number of products subject to changes in world prices.
Conclusion
India needs to make efforts to counter the growing impact of China on its economy. If
the Colombo port's operations are hindered, India could face higher costs and traffic issues. A
shipment of diesel should arrive in Sri Lanka soon thanks to a $500 million credit line negotiated
with India. Sri Lanka was shaken by widespread protests that started in March. Economic
decisions like large tax cuts and debt repayments contributed to the worsening of the situation.
Sri Lanka's recent successes have been overshadowed on a few fronts by a number of policy
blunders that were made worse by external forces. Sri Lanka's issues with its current account
balance contributed to the BOP crisis. Things got worse when the IMF wasn't asked for any help.
IMF bailouts have historically been the least preferable option for any economy. When faced
with a financial crisis, Sri Lanka's options were constrained.
Shortsighted development policies in Sri Lanka have made the country less able to
produce several agricultural goods. Sri Lanka's tourism industry was severely harmed by the
Easter Sunday 2019 bombings, which claimed over 250 people. The
COVID-19
pandemic and the
conflict between Ukraine and Russia make it extremely difficult to revive this industry.
Exogenous shocks have a terrible impact on emerging economies, notably those in South Asian
nations. Lack of resources and prejudiced policies has frequently led to economic catastrophes,
especially in the Global South. A certain degree of insulation between nations is necessary to
avert a regional economic collapse. Experts from the UN say that Sri Lanka's debt crisis has
significantly impacted human rights. Sri Lanka stopped making interest payments on its $51
billion foreign debt in May. India ought to provide Sri Lanka with financial aid, advice on public
policy, and investments from Indian businesspeople. To ensure the nation's economic revival, Sri
Lanka's government should take the essential actions. India shouldn't allow the Chinese to take
over growing portions of Sri Lankan territory. It is impossible to have strained relations between
India and Sri Lanka.
ISSN NO : 1869-9391
PAGE NO: 1123
GIS SCIENCE JOURNAL
VOLUME 9, ISSUE 8 , 2022
Reference
Biju Paul Abraham, Partha Ray (2022), “An Outcome of Populist Macroeconomics and
Family-run Polity?”,
Economic & Political Weekly,Vol. 57 , Issue No. 32, 06 Aug,
202 2.
The Conversation (2022), “Sri Lanka’s crisis: Can the South Asian economy break from the
past and find a route to stability?” ,
Academic rigour, journalistic flair, Published: July 22,
2022 9.42pm BST.
The Conversation (2022), “Behind the crisis in Sri Lanka – how political and economic
mismanagement combined to plunge nation into turmoil”,
Academic rigour, journalistic flair,
Published: July 18, 2022 6.42pm BST.
The Conversation (2022), “The Sri Lankan state is using violence to unleash fury on its
citizens, as its political and economic crisis deepens”,
Academic rigour, journalistic flair,
Published: May 12, 2022 4.34am BST.
The Conversation (2022), “The Sri Lankan state is using violence to unleash fury on its
citizens, as its political and economic crisis deepens”,
Academic rigour, journalistic flair,
Published: May 4, 2022 3.16pm BST.
Basu, Kaushik (2022), “Why Sri Lanka Imploded: Project Syndicate,”
22 July,
https://www.project-syndicate.org/commentary/sri-lanka-why-it-has-collapsed-by-
kaushik-basu-2022-07.
Hein, Patrick (2020), “The Patterns of Chinese Authoritarian Patronage and Implications for
Foreign Policy: Lessons from Sri Lanka, Myanmar and Cambodia,”
Asian Journal of
Comparative Politics, Vol 5, No 4, pp 385–99.
Senanayake, Devana
(2022), “Inside Sri Lanka’s Devastating Economic Crisis,”
Foreign
Policy, FP Dispatch, 18 July, https://foreignpolicy.com/ 2022/07/18/sri-lanka-economic-
fuel-crisis-mass-protests-wickremesinghe-rajapaksa-politics/.
Business Standard (2022), “Sri Lanka’s economic outlook uncertain, needs urgent
measures: World Bank”,
April 14.
Dushni Weerakoon, Utsav Kumar and Roselle Dime (2019), “Sri Lanka’s Macroeconomic
Challenges: A Tale of Two Deficits,”
ADB South Asia Working Paper Series, No. 63.
Weerakoon, D., Kumar, U., & Dime, R. (2019), “Sri Lanka’s macroeconomic challenges: A
tale of two deficits”
Sri Lanka.
Business Today (2022), “Sri Lanka: Tourism industry impacted on rising fuel prices, power
cuts,”
April 6.
The Business Standard (2022), “Sri Lanka imposes nationwide social media blackout:
Internet observatory,”
April 3.
Financial Times (2022), “Ukraine crisis batters Sri Lanka’s tea and tourism recovery
strategy,”
March 6.
Anusha Ondaatjie (2022), “Russia’s war in Ukraine is crushing Sri Lanka’s $81 billion
economy,”
The Print, March 17.
ISSN NO : 1869-9391
PAGE NO: 1124
GIS SCIENCE JOURNAL
VOLUME 9, ISSUE 8 , 2022
Central Bank of Sri Lanka (2018), “Macroeconomic developments,”
Annual Report
(Volume I) ,The Monetary Board, Minister of Finance, Sri Lanka.
Thushanga, Y. T., & Piyadasa, R. U (2021), “The Effect of COVID 19 pandemic to the
Tourism Industry in Sri Lanka”,
Sri Lanka.
Umesh Moramudali (2021), “Sri Lanka’s Foreign Debt Crisis Could Get Critical in
2021,”
The Diplomat, February 09.
Krithiga Narayanan (2022), “Sri Lanka’s foreign debt default: Why the island nation went
under,”
DW, April 14.
Umesh Moramudali (2021), “Sri Lanka’s Foreign Debt Crisis Could Get Critical in
2021” the diplomat, February 09.
Department of External Resources (2021),“Foreign Debt Summary,”
Sri Lanka.
Chandrashekhar Srinivasan (2022), “Sri Lanka to default on external debt of $51 billion
pending IMF bailout,”
The Hindustan Times, April 12.
The Hindu (2022),“China infra projects in focus as crisis worsens in Sri Lanka,”
May 11.
Marwaan Macan-Markar (2022), “Sri Lanka meltdown exposes China loan policy: 5 things
to know,”
Nikkei Asia, May 13.
Meera Srinivasan (2022),“Sri Lanka turns to China for further $2.5-billion assistance,”
The
Hindu, March 21.
Dipanjan Roy Chaudhary (2022), “India extends $1 billion Line of Credit to Sri
Lanka,”
Economic Times, March 18.
Business Standard (2022), “India sends over 2 bn humanitarian aid consignment to Sri
Lanka amid crisis,”
May 22.
Mint (2022), “India helped the most, no new Chinese investment: Sri Lanka’s ex PM on
financial crisis,”
April 10.
The Hindustan Times (2022), “UN warns Sri Lanka could face ‘full-blown humanitarian
emergency”, June
10.
Yoganandham. G., G. Elanchezhian & Mohammed Imran Khan. E (2022), “The Sri
Lankan Economic Crisis Has An Impact On The Indian Economy In Terms Of Its Causes,
Effects, Current Economy Shocks And Consequences- A Theoretical Perspective”,
GSI
Science Journal, DOI: 20.18001.GSJ.2022.V916.22.3955971, Scopus Active Journal
(https://www.scopus.com / sourceid/2110036444), UGC-CARE GROUP – II Journal
(https://ugccare.unipune.ac,in/apps1/home/index), Scientific Journal Impact Factor -
6.1, ISSN: 1869-9391.
******
ISSN NO : 1869-9391
PAGE NO: 1125
GIS SCIENCE JOURNAL
VOLUME 9, ISSUE 8 , 2022
