India and Sri Lanka have a legacy of intellectual, cultural, religious, and linguistic interaction, and the relationship between the two countries is more than 2500 years old. Trade and investment have grown and there is cooperation in the fields of development, education, culture, and defense.

India’s ‘Neighbourhood First’ policy towards Sri Lanka had resonated with Sri Lanka’s ‘India First’ foreign and security policy in 2020.

However in recent times, due to Chinese intervention, the ties between the two countries have plummeted. The condition is likely to worsen with Sri Lanka declaring a state of emergency in the country.

Brief background of India-SL relations

• India is the only neighbor of Sri Lanka, separated by the Palk Strait; both nations occupy a strategic position in South Asia and have sought to build a common security umbrella in the Indian Ocean.
• There are deep racial and cultural links between the two countries. Both share a maritime border.
• The India-Sri Lanka relations have been however tested by the Sri Lankan Civil War and by the controversy of Indian intervention during the war.
• In recent years Sri Lanka has moved closer to China, especially in terms of naval agreements.
• India has signed a nuclear energy deal to improve relations and made a nuclear energy pact with Sri Lanka in 2015.

India’s role in the Lankan Civil War

• In the 1970s–1980s, the RAW and the state government of Tamil Nadu were believed to be encouraging the funding and training for the Liberation Tigers of Tamil Eelam (LTTE), a separatist insurgent force.
• In 1987, faced with growing anger amongst its own Tamils, and a flood of refugees India intervened directly in the conflict for the first time.
• This was after the Sri Lankan government attempted to regain control of the northern Jaffna region by means of an economic blockade and military assaults; India supplied food and medicine by air and sea.

Why did India intervene?

• Indian intervention in Sri Lankan civil war became inevitable as that civil war threatened India’s unity, national interest and territorial integrity.

Outcomes

• The peace accord assigned a certain degree of regional autonomy in the Tamil areas with a body controlling the regional council and called for the Tamil militant groups to lay down their arms.
• Further India was to send a peacekeeping force, named the IPKF to Sri Lanka to enforce the disarmament and to watch over the regional council.
• The accord failed over the issue of representations. The result was that the LTTE found itself engaged in military conflict with the Indian Army.

Areas of cooperation

Economic Relations

• India and Sri Lanka enjoy a vibrant and growing economic and commercial partnership, which has witnessed considerable expansion over the years.
• India and Sri Lanka are member nations of several regional and multilateral organizations such as the South Asian Association for Regional Cooperation (SAARC), South Asia Co-operative Environment Programme, South Asian Economic Union and BIMSTEC.
• India is Sri Lanka’s third largest export destination, after the US and UK.
• India-Sri Lanka Free Trade Agreement (ISFTA): More than 60% of Sri Lanka’s exports enjoy the benefits of the agreement, which came into effect in March 2000.
• Sri Lanka remains among the largest trade partners of India in the SAARC.
• India is also one of the largest contributors to FDI into Sri Lanka. India's major investment in Sri Lanka is in sectors like petroleum retail, torurism and hospitality, manufacturing, real estate, telecommunication, banking and financial services.

Development co-operation

• Line of Credit: India is active in a number of areas of development activity in Sri Lanka. About one-sixth of the total development credit granted by India is made available to Sri Lanka. Since 2005, Government of India has committed a total of $2.6 billion to Sri Lanka, out of which $436 million is grant assistance and $2.17 billion under Lines of Credit.
• Development Partnership: India’s development partnership with Colombo has always been demand-driven, with projects covering social infrastructure like education, health, housing, access to clean water and sanitation, besides industrial development.
• Concessional financing of about $2 billion has been provided to Sri Lanka through various Indian government-supported Lines of Credit across sectors for railway connectivity, infrastructure, etc.
• Foreign direct investment (FDI) from India amounted to around $ 1.7 billion over the years from 2005 to 2019.
• Fishing Sector: Projects for providing fishing equipment to the fishermen in the East of Sri Lanka and solar energy-aided computer education in 25 rural schools in Eastern Sri Lanka are under consideration.
• Healthcare: India has supplied medical equipment to hospitals at Hambantota and Point Pedro, supplied 4 state-of-the-art ambulances to the Central Province etc.
• Tourism: Indian governments have also shown interest in collaborating with their Sri Lankan counterparts on building tourism between the two countries based on shared religious heritage.
• IDPs: The government of India's support to internally displaced persons (IDPs) in Sri Lanka before the end of armed conflict there is commendable. GOI provided food packets in large numbers, set up an emergency hospital (which provided emergency treatment to about 50000 patients and conducted nearly 3000 surgical operations), temporary shelters to the IDPs, supply of agricultural implements, seeds and tractors to revive agriculture in the conflict-affected northern part of Sri Lanka.

Defense and strategic cooperation

• India and Sri Lanka conducts one of the largest joint Military exercises called ‘Mitra Shakti’. Both conduct joint naval exercise called ‘SLINEX’.
• India is the largest provider of defense training programs to Sri Lankan soldiers and Defence officials.
• India, Sri Lanka, and Maldives have signed trilateral maritime security cooperation in the Indian Ocean region.
  • The cooperation aims at improving surveillance, anti-piracy operations and reducing maritime pollution.
• In 2022, India and Sri Lanka entered into an agreement to expand maritime security which provides for setting up a joint Maritime Rescue Coordination Centre (MRCC) at Colombo with a Sub-Centre at Hambantota and additional sub-units at other places. This is to strengthen Sri Lanka's capacities in its search and rescue region. India has committed to grant assistance of $6 million for the establishment of the MRCC.
• Donation of a floating dock and supply of Dornier surveillance aircraft ((an extremely versatile multipurpose light transport aircraft) by India to Sri Lanka are also agreed upon in 2022.

Cultural relations

• India and Sri Lanka have a shared legacy of historical, cultural, religious, spiritual and linguistic ties that is more than 2,500 years old.
• In contemporary times, the Cultural Cooperation Agreement signed between the two governments forms the basis for periodic Cultural Exchange Programmes between the two countries.

People-to-people ties

• Buddhism is one of the strongest pillars connecting the two nations and civilizations from the time when the Great Indian Emperor Ashoka sent his children Arhat Mahinda and Their Sangamitta to spread the teachings of Lord Buddha at the request of King Devanampiya Tissa of Sri Lanka.
• Underlining the deep people-to-people connect and shared Buddhist heritage, the venerated relics of Lord Buddha from Kapilawasthu discovered in 1970 in India have been exhibited two times in Sri Lanka.
• India in 2020, announced USD 15 million grant assistance for protection and promotion of Buddhist ties between India and Sri Lanka.
  • It may be utilized for construction/renovation of Buddhist monasteries, education of young monks, strengthening engagement of Buddhist scholars and clergy, development of Buddhist heritage museums, etc.

Plummeting relations

• The ties began to worsen between the two since February, 2021 when Sri Lanka backed out from a tripartite partnership with India and Japan for its East Container Terminal Project at the Colombo Port, citing domestic issues.
  • However, later, the West Coast Terminal was offered under a public private partnership arrangement to Adani Ports and Special Economic Zones Ltd.
• Sri Lanka in a state of economic emergency: Sri Lanka is running out of foreign exchange reserves for essential imports like food. It has recently declared a state of economic emergency. India provided assistance worth $3.8 billion to Sri Lanka to deal with the unprecedented economic crisis.
  • Covid Impact:

1. Sri Lanka increased policy rates after the covid pandemic in response to rising inflation in August 2021 caused by currency depreciation.
2. Tourism sector has suffered since the Easter Sunday terror attacks of 2019, followed by the pandemic.
3. Earnings fell from $3.6 billion in 2019 to $0.7 billion in 2020, even as FDI inflows halved from $1.2 billion to $670 million over the same period.
4. Sri Lanka’s fragile liquidity situation has put it at high risk of debt distress. Its public debt-to-GDP ratio was at 109.7% in 2020, and its gross financing needs remain high at 18% of GDP.
5. Its gross official reserves slipped to $2.8 billion, which is equivalent to just 1.8 months of imports. More than $2.7 billion of foreign currency debt will be due in the next two years.

Major outstanding issues

 Fishing disputes

• There have been several alleged incidents of Sri Lankan Navy personnel firing on Indian fishermen fishing in the Palk Strait, where India and Sri Lanka are only separated by 12 nautical miles.
• The issue started because of Indian fishermen having used mechanized trawlers, which deprived the Sri Lankan fishermen (including Tamils) of their catch and damaged their fishing boats.
• The Sri Lankan government wants India to ban use of mechanized trawlers in the Palk Strait region, and negotiations on this subject are undergoing.
• So far, no concrete agreement has been reached since India favors regulating these trawlers instead of banning them altogether.

Alleged political interference

• A media report from Colombo soon after Rajapaksa’s defeat in the January 8 elections of 2015 had said that an Indian Intelligence official was instrumental in uniting rival political parties — the Sri Lanka Freedom Party (SLFP) and the United National Party (UNP) — against him during the polls.
• In October 2018, President Sirisena alleged that Indian intelligence agencies were plotting his assassination.

Katchatheevu Island

• It is an uninhabited island that India ceded to Sri Lanka in 1974 based on a conditional agreement called “Kachchativu island pact”.
• Later on, Sri Lanka declared Katchatheevu, a sacred land given the presence of a Catholic shrine.
• But Tamil Nadu claimed that Katchatheevu falls under the Indian Territory and Tamil fishermen have traditionally believed that it belongs to them and therefore want to preserve the right to fish there.

China factor

• Sri Lanka has a history of taking independent decisions even if they cause misgivings in India.
• In the period of low profile relationship between the two nations, Sri Lanka apparently started favoring China over India.
• China is Sri Lanka’s largest bilateral creditor: China’s loans to the Sri Lankan public sector amounted to 15% of the central government’s external debt, making China the largest bilateral creditor to the country.
  • Sri Lanka has increasingly relied on Chinese credit to address its foreign debt burden.
• China’s Exports surpasses India: China’s exports to Sri Lanka surpassed those of India in 2020 and stood at $3.8 billion.
  • India’s exports were $3.2 billion.
• Infrastructural Investment by China: Owing to Sri Lanka’s strategic location at the intersection of major shipping routes, China’s investment stands at $12 billion between 2006 and 2019.

1. Unable to service its debt, in 2017, Sri Lanka lost the unviable Hambantota port to China for a 99-year lease.
2. Sri Lanka passed the Colombo Port City Economic Commission Act, which provides for establishing a special economic zone around the port and also a new economic commission, to be funded by China.
3. The Colombo port is crucial for India as it handles 60% of India’s trans-shipment cargo.

• Shifting interests due to economic crisis: Sri Lanka’s economic crisis may further push it to align its policies with Beijing’s interests.

1. This comes at a time when India is already on a diplomatic tightrope with Afghanistan and Myanmar.
2. Other South Asian nations like Bangladesh, Nepal and the Maldives have also been turning to China to finance large-scale infrastructure projects.

Why is Sri Lanka important to India?

• India is Sri Lanka’s closest neighbor. Both sides have built upon a legacy of intellectual, cultural, religious and linguistic interaction.
• Sri Lanka has always been politically and economically important to India given its strategic geographical position in the Indian Ocean. The relationship has been marked by close contacts at all levels.
• Sri Lanka sits at the epicenter of the arc connecting the Persian Gulf to the Strait of Malacca. An island nation with an economy that’s mainly reliant on tourism and tea exports, Sri Lanka’s blessed geography puts it at a crucial juncture of the busy shipping lanes of the Indian Ocean.
• India also has a vital strategic stake in Sri Lanka for its own security interests. An unfriendly Sri Lanka or a Sri Lanka under influence of a power unfriendly to India would strategically discomfit India.
• For the Indian Navy, Sri Lanka is important as the switching of naval fleets from the Bay of Bengal to the Arabian Sea and vice versa requires the fleets to go around the island nation.
• Both countries share a common broad understanding on major issues of international interest and experience common social-political problems relating to community divides.

What does Sri Lanka expect from India?

• The humanitarian work by Indian agencies like supplies of medicines, doctors and providing refuge to more than 3 lakhs IDP’s during the decade-old civil war has created a sense of mutual cooperation among the countries natives.
• Sri Lanka is one of the leading recipients of India’s Line of Credits.
• India has always rushed for the relief at the first signs of the rains and floods in Sri Lanka recently. Sri Lanka still commends the post-tsunami HADR relief operations carried out by India in the end-2004.
• India’s military, intelligence and security establishment has maintained its relations with its Sri Lankan counterpart, and both sides have been on the same page at all times.
• The security environment in the neighborhood will be discussed in light of the 21 April Easter Church bombings, and lessons learned from it.
• India is also the largest provider of defense training programs for Sri Lankan soldiers and Defence officials.

A greater role for India

 Gathering convergence towards SL

• Delhi needs to invest some political capital in resolving problems such as the long-standing dispute over fisheries.
• Beyond its objection to China’s BRI projects, Delhi, either alone or in partnership with like-minded countries like Japan, should offer sustainable terms for infrastructure development.
• Delhi also needs to contribute more to the development of Colombo’s defence and counter-terror capabilities.

Answering the Tamil Question

• The second structural factor shaping India’s relations with Sri Lanka is the Tamil question.
• Delhi has certainly learned the dangers of being drawn too deep into the domestic conflicts of neighboring countries.
• Sri Lanka government's response to Tamil issues in Sri Lanka will have a bearing on the future of India-Sri Lanka relations.

No china factor indeed

• Labeling governments in Sri Lanka as “pro-China” or “pro-India” is irrelevant. It is evident that China’s economic and strategic salience in the subcontinent is not tied to the regime leadership.
• Previous Lankan President Maithripala Sirisena who considered as pro-India came to power criticizing the Chinese projects in Sri Lanka, but within two years into power, it extended full backing to the Chinese projects.

Harnessing the ray of hope

• Our challenges in Sri Lanka will continue, but we are off to a good start with the new government.
• Ranil Wickremesinghe - the new President of Sri Lanka has said that Sri Lanka would not allow China to use Hambantota Port for military purposes. The port was developed as part of China's Belt and Road Initiative (BRI), but in 2017, it was leased out to China for 99 years due to Sri Lanka's inability to pay back China's loan.
• Gotabaya Rajapaksa (the predecessor of Ranil Wickremesinghe) made repeated statements that his government would like Sri Lanka to be a “neutral country” and that “Sri Lanka won’t do anything that will harm India’s interests.”
• Gotabaya was also critical of the previous government giving Hambantota Port on a 99-year lease to China.
• He went on to add that giving land as investment for developing a hotel or a commercial property was not a problem but the strategically important, economically important harbor, giving that is not acceptable.
• The Rajapaksas have acknowledged that India has not interfered in the recent elections.
• The first visit abroad by Gotabaya Rajapaksa to India has its own symbolic significance, translating into a diplomatic gesture his statement to the EAM that while China is a trade partner, India is a relative.

Way Forward

• Nurturing the Neighborhood First policy with Sri Lanka will therefore be important for India, albeit with due caution, to preserve its strategic interests in the Indian Ocean region.
• Regional platforms like the BIMSTEC, SAARC, SAGAR and the IORA could be leveraged to foster cooperation in common areas of interest like technology-driven agriculture and marine sector development, IT and communication infrastructure, renewable energy, and transport and connectivity.
• Both countries could also cooperate on enhancing private sector investments to create economic resilience.
• This stability in the Indian government should find synergy with the new Sri Lankan president policy which includes “neutrality” and “non-alignment” between major powers.
• Rather than focusing on building the case against China, New Delhi must step up its efforts to show what it is for.
• India can never match Beijing’s economic wherewithal to make a difference to Colombo’s developmental requirements.
• But it can carve out a niche role in some areas and also partner smartly with likeminded strategic partners like Japan to make an economic and strategic difference in Sri Lanka and make use of and leverage India’s soft power.