India makes inroads into Sri Lanka under China’s long shadow

Columbus/NEW DELHI, December 27 (Reuters) – As Sri Lanka plunges into its worst economic crisis in seven decades, which led to deadly riots and worrying shortages of fuel, food and medicine earlier this year, its giant northern neighbor has stepped into the breach.

From January to July, India provided about 4 billion USD emergency aid, including lines of credit, a currency exchange arrangement and deferred import payments, and sent a warship carrying $22 million worth of essential medicines. the inhabitants of the island.

Now that Sri Lanka is completing a $2.9 billion a government minister and three sources said.

“Right now we are looking at their investment,” Sri Lankan Foreign Minister Ali Sabry said in an interview this month, referring to projects currently under discussion worth more than $1 billion. USD that would help strengthen India’s presence in Sri Lanka. “They are willing to invest as much as it takes.”

“India is probably looking at this strategically … because of its security concerns,” Sabry said.

India’s foreign ministry did not respond to questions from Reuters about its plans and strategic objectives in Sri Lanka.

Regional security will always be New Delhi’s focus, a source familiar with the matter told Reuters, amid ongoing friction with China on their Himalayan border.

“There’s no two ways about the security concerns,” said the source, who asked not to be named because of the sensitivity of the issue. “In terms of long-term commitment, the focus is on investment.

In addition to seeking Indian investment in developing renewable energy and power projects in the north of the island, several officials said they are also keen to work with New Delhi to make Trincomalee port in the northeast a big one.

Taking advantage of northern Sri Lanka’s proximity to India, these projects could help New Delhi balance Chinese infrastructure projects in the island’s south that have been built over the past 15 years.

Sri Lanka’s Tamil-dominated north also shares ethnic ties with the southern Indian state of Tamil Nadu.

CONCERN CHINA

The talks and the scale of India’s aid, which has far outpaced other donors this year, underscore New Delhi’s efforts to regain influence on the island, just a few miles from its southern tip along the busy waterways that connect Asia to Europe.

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In late June, two weeks before tens of thousands of angry Sri Lankans took to the streets and forced President Gotabaya Rajapaksa to flee the country, India’s top diplomat flew to the island nation’s main city, Colombo, for a meeting.

Foreign Secretary Vinay Kwatra, accompanied by officials from India’s finance ministry, met Rajapaksa and Prime Minister Ranil Wickremesinghe and others.

According to a Sri Lankan government source with direct knowledge of the discussions, in their conversations with the Sri Lankan leadership, Kwatra and other Indian officials identified China’s position as a key geopolitical concern.

The source, who declined to be named because he was not authorized to speak to the press, said China’s huge role in the island’s economy, which grew under previous Rajapaksa administrations, worried India more than anything else.

Details of the June meeting have not been previously announced.

Kwatra and the foreign ministries of India and Sri Lanka did not respond to questions from Reuters about the June meetings.

In a statement released immediately after Quatra’s visit, India’s Ministry of External Affairs said the focus was on economic issues, including increasing investment. It did not mention China.

New Delhi has long been concerned about China’s influence in its neighbourhood, which includes Nepal, Bangladesh and Sri Lanka. Sensitivities heightened and diplomatic relations soured when, in 2020, Indian and Chinese troops have clashed on a remote Himalayan border, killing dozens of soldiers.

“We understand that it is their prerogative to take care of their security,” Sabry said, referring to India. – Regarding Sri Lanka, we do not want to contribute to the escalation of tensions between the countries.

Meanwhile, China is working with the Sri Lankan government on debt restructuring necessary to implement the IMF deal, in addition to sending shipments of medicine, fuel and rice.

The World Bank estimates that Beijing’s lending is about $7 billion. USD, or 12% of Sri Lanka’s 63 billion USD external debt.

“We are willing to cooperate with relevant countries and international financial institutions to continue to play a positive role in helping Sri Lanka,” China’s foreign ministry said in a written response to questions from Reuters.

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The ministry said it had no information about Indian aid and investment in Sri Lanka and that its own support to Sri Lanka “is not directed to third countries”.

THE PERFECT STORM

Sri Lanka has been plunged into a financial crisis after the COVID-19 pandemic hit tourism and reduced remittances from citizens working abroad. The war in Ukraine has sharply increased the prices of imports, especially fuel.

The Rajapaksa administration has also resisted IMF aid, meaning foreign exchange reserves have dwindled, exacerbating fuel and medicine shortages.

Tens of thousands of people took to the streets and stormed government buildings in violent protests.

In July, the president fled the country and resigned. By then, Sri Lanka had finally reached an agreement with the IMF, with both countries signing a tentative $2.9 billion loan. USD loan agreement.

But it was India’s aid to Sri Lanka that helped buy time.

“Without India, Sri Lanka would have unfolded like Lebanon,” said Uditha Devapriya, chief international relations analyst at Factum, a Columbus-based foreign policy think tank.

“Sri Lanka has clearly benefited from being the closest neighbor of the most powerful country in the region. India also has an interest in ensuring stability in its own backyard.”

October month. Wickremesinghe, who took over as president in July after Rajapaksa stepped down, unveiled a plan for Trincomalee, which has a natural deep-water port, including a proposal to work with India to develop a strategic port, not just a new one. industrial zone and energy center, according to data released by his office.

India and Sri Lanka are also in preliminary discussions on an undersea cable to connect the two countries’ power grids and a fuel pipeline from the southern Indian mainland to northern Sri Lanka, projects that officials on both sides say could cost at least $4 billion. .

In the power sector, India’s state-owned NTPC is developing a 100-megawatt solar power plant in Sampur in Trincomalee district after the two countries signed an agreement in March.

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In northwestern Sri Lanka, India’s Adani Group is awaiting regulatory approval for two wind power projects worth $500 million. USD, Sri Lankan Energy Minister Kanchana Wijesekera said in August.

Off the northwest coast, ONGC Videsh Limited (OVL), the foreign arm of Delhi’s state-owned Oil and Natural Gas Corporation, has earmarked exploration licenses and held multiple discussions with Sri Lankan authorities, who are finalizing the rules before inviting them. bids from global companies, two officials at Sri Lanka’s energy ministry said.

Both asked not to be named because discussions are ongoing.

Adani, NTPC and OVL did not respond to questions from Reuters about their projects in Sri Lanka.

Boosting oil and gas exploration was part of discussions in June, a source with knowledge of the talks said.

YUAN WAN 5

Foreign Minister Sabry said the Sri Lankan government wants to take advantage of India’s growing economic power, particularly through renewable energy and infrastructure projects, while maintaining key relations with other key allies, including China and Japan.

Despite India’s recent goodwill in Sri Lanka, New Delhi remains wary of China’s presence.

In July and August, the regional rivals were embroiled in a diplomatic dispute over the Chinese military research vessel Yuan Wang 5, which docked in the southern Sri Lankan port of Hambantota.

At the time, India’s foreign ministry spokesman Arindam Bagchi said that while India had provided “unprecedented” support to Sri Lanka during the economic crisis, New Delhi would not back down from its security needs.

Despite India’s crucial aid during this year’s financial crisis, Sri Lanka still needs China, one of its biggest creditors, to agree to a debt restructuring plan along with India and Japan for an IMF loan deal, Sri Lankan officials said.

“Chinese investment is very important, the Chinese relationship is very important,” Sabry said.

“So I don’t think even India or anybody expects Sri Lanka not to cooperate with China. To be fair, none of them have asked us to.”

Reporting by Uditha Jayasinghe and Devjyot Ghoshal; Edited by Mike Collett-White and Raju Gopalakrishnan

Our Standards: The Thomson Reuters Trust Principles.

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