A win for India in Sri Lanka

Decades of Indian diplomatic efforts have finally borne fruit with India signing three agreements with the Sri Lanka government on jointly developing the Trincomalee oil tank farm in eastern Sri Lanka. The oil tank farm will be managed by a 51-49% joint venture between Ceylon Petroleum Complex and Indian Oil Corporation’s Lankan subsidiary.

The agreement will strengthen India-Sri Lanka economic cooperation, help boost India’s energy security, and provide it a presence in an area of high strategic value.

The once-warm India-Sri Lanka relationship has been turbulent in recent years as Colombo assiduously courted China. While former President Mahinda Rajapaksa drove the country into multi-billion-dollar debts by allowing the Chinese to develop over-priced and often unprofitable infrastructure projects on the island, the Maithripala Sirisena government handed over Hambantota Port to China on a 99-year lease. Gotabaya Rajapaksa’s presidency has been no different. It handed over the East Container Terminal project at Colombo to the Chinese after cancelling an agreement with India and Japan for its development. Public opposition to India’s participation was cited as the reason for cancelling the ECT deal with India. However, Colombo is not proffering such excuses in relation to Chinese projects, although public unease with the Chinese policy of not hiring local labour is mounting.

Sri Lanka is in the grip of a severe economic crisis. The country’s forex reserves are down to $1.6 billion, just enough to pay for imports for a few weeks; inflation has reached record levels; food prices are soaring. The Rajapaksa government is in talks with India for a $1.9 billion economic aid package. It has also asked the Chinese to restructure debt repayments to ease Sri Lanka’s economic burden. Chinese Foreign Minister Wang Yi made no announcement in this regard during his just-concluded visit to the island. The possibility of China demanding handover of projects in lieu of debt repayment cannot be ruled out. This is what happened when the Sirisena government was unable to repay the debt incurred on the Hambantota project. China is not a generous partner, and although it may be willing to fork out larger amounts than India to bail Sri Lanka out of its current problems, it will only drive the island-nation into graver crisis.

While India can draw satisfaction from the Trincomalee deal, the India-China contest for influence in Colombo will only intensify. The Rajapaksas, meanwhile, can be expected to seek to derive the greatest benefit by playing India and China off each other. Delhi must also expect them to hand over more projects, even military concessions, to China to get Beijing to bail them out of their problems.