India has decided to back Sri Lanka’s debt restructure programme, positioning itself as the first bilateral creditor of Sri Lanka following its economic downfall last year. In a written confirmation to the International Monetary Fund (IMF), India expressed its support to Sri Lanka, emphasising India’s “neighborhood first” policy and its commitment not to leave its partners in distress.
The IMF will approve a planned USD 2.9 billion package for Sri Lanka only if its primary creditors – China, Japan, and India – provide adequate financial assurances. Alongside this, India and Sri Lanka inked a bilateral agreement to heighten the limit of the High Impact Community Development Project (HICDP) while India’s External Affairs Minister was on a visit to Sri Lanka.
The Strategic Importance of India-Sri Lanka Relations
India and Sri Lanka are both South Asian nations located in the Indian Ocean region, separated only by the Palk Strait, which has significantly influenced their interrelationship. Sri Lanka’s strategic position at the intersection of major shipping lanes makes it a critical control point for India due to the Indian Ocean’s importance for trade and military operations.
Historical, Economic, and Defence ties between India and Sri Lanka
India and Sri Lanka share a deep-rooted history of cultural exchanges, religious affiliations, and trading relations stretching back to ancient times. More than 60% of Sri Lankan exports benefit from the India-Sri Lanka Free Trade Agreement, making India its third-largest export destination after the US and UK.
The defence relationship between the two nations is also robust with joint Military (Mitra Shakti) and Naval exercises (SLINEX) being a regular feature. The bilateral foreign direct investment (FDI) from India to Sri Lanka amounted to approximately USD 1.7 billion between 2005 and 2019.
Challenges in India-Sri Lanka Relations
Despite the close ties, certain issues compromise India-Sri Lanka relations. The recurring issue of the killing of Indian fishermen by the Sri Lankan Navy has led to diplomatic tensions. Between 2019 and 2020, 284 Indian fishermen were arrested, and 53 Indian boats were confiscated by Sri Lankan authorities.
Sri Lanka’s growing economic dependencies on China and the latter’s expanding influence in Sri Lanka have strained the relationship between India and Sri Lanka. Additionally, the unresolved issue of the full implementation of the 13th Amendment of the Sri Lankan Constitution, which India supports, has also been a point of contention.
The Role of the International Monetary Fund (IMF)
The IMF’s role in global economic stability is critical. Established alongside the World Bank following the Second World War, the IMF was designed to help reconstruct war-torn countries. Today, its primary purpose is ensuring global financial stability, particularly focusing on the system of exchange rates and international payments.
India joined the IMF on December 27, 1945 and is part of its 190-country membership, making it one of the Bretton Woods twins. The IMF regularly publishes significant reports such as the Global Financial Stability Report and World Economic Outlook to keep tabs on global financial trends.
In adhering to its “Neighbourhood First policy”, India’s support to Sri Lanka in its crises reflects its vision for a stable, friendly neighbourhood. India’s key role in assisting Sri Lanka during its economic meltdown demonstrates this commitment and reiterates the value of its bilateral relations with the island nation.
