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India enters Sri Lanka under China’s long shadow

India enters Sri Lanka under China’s long shadow

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COLOMBO/NEW DELHI, Dec 27 (Reuters) – As Sri Lanka descended into its worst economic crisis in seven decades earlier this year, leading to deadly riots and worrying shortages of fuel, food and medicine, its giant northern neighbor intervened in the breach.

India provided about $4 billion in emergency aid between January and July, including credit lines, a currency swap agreement and deferred import payments, and sent a warship carrying essential medicine for the island’s 22 million residents.

Now that Sri Lanka is wrapping up a $2.9 billion International Monetary Fund (IMF) loan deal and its economy is stabilizing, India is seeking to attract ambitious long-term investment as it seeks to counter the influence of regional rival China, a government minister and three sources said.

“What we’re looking at right now is investment on their part,” Sri Lankan Foreign Minister Ali Sabri said in an interview this month, referring to a number of projects worth more than $1 billion currently under discussion that would help to 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 their security concerns,” Sabri 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 over their Himalayan border.

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

Besides seeking Indian investment to set up renewable energy and power projects in the north of the island, Sri Lanka is also keen to work with New Delhi to expand and develop the Trincomalee port in the northeast into a major port, several officials said.

Taking advantage of northern Sri Lanka’s proximity to India, these projects could help New Delhi balance China’s extensive infrastructure projects in the south of the island 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 about China

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

In late June, two weeks before tens of thousands of angry Sri Lankans took to the streets to force President Gotabaya Rajapaksa out of the country, India’s top diplomat flew to the island nation’s capital, Colombo, for meetings.

External Affairs Minister Vinay Kwatra, who was accompanied by officials from India’s finance ministry, met, among others, Rajapaksa and Prime Minister Ranil Wickremesinghe.

In talks with the Sri Lankan leadership, Kwatra and other Indian officials noted China’s position as a key geopolitical issue, according to a Sri Lankan government source with direct knowledge of the discussions.

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 has mushroomed under previous Rajapaksa administrations, worries India more than anything else.

Details of the June meeting have not yet been announced.

Quatra and the Indian and Sri Lankan foreign ministries did not respond to questions from Reuters about the June meetings.

In a statement released immediately after Quatra’s visit, India’s foreign ministry said the talks were mainly focused on economic issues, including deepening investment. It does not mention China.

New Delhi has long been concerned about China’s influence in its neighbors, including Nepal, Bangladesh and Sri Lanka. Sensitivities flared and diplomatic relations soured after Indian and Chinese troops clashed along a remote Himalayan border in 2020, leaving dozens of soldiers dead.

“We understand that it is their prerogative to look after their security,” Sabri said, referring to India. “And as far as Sri Lanka is concerned, we do not want to contribute to any escalation of tension between the countries.

Meanwhile, China has engaged the Sri Lankan government on debt restructuring, which is needed to implement the IMF deal, in addition to sending shipments of medicine, fuel and rice.

The World Bank grades Beijing’s lending amounts to about $7 billion, or 12 percent of Sri Lanka’s $63 billion foreign debt.

“We are ready to work 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.

The ministry said it did not have details of India’s aid and investment in Sri Lanka and that its own support for Sri Lanka “is not directed at third countries”.

A PERFECT STORM

Sri Lanka plunged into a financial crisis after the COVID-19 pandemic decimated tourism and remittances from citizens working abroad dwindled. The war in Ukraine has sharply raised import prices, especially fuel.

The Rajapaksa administration also resisted aid from the IMF, which meant foreign reserves dwindled, exacerbating fuel and medicine shortages.

Violent protests erupted after tens of thousands of people took to the streets and stormed government buildings.

The president fled the country in July and resigned. By then, Sri Lanka had finally committed to the IMF, and the two countries have since entered into a preliminary loan deal of $2.9 billion.

But Indian help helped Sri Lanka gain time.

“Without India, Sri Lanka would have collapsed like it did with Lebanon,” said Udita Devapriya, principal international relations analyst at Factum, a Colombo-based foreign policy think tank.

“Sri Lanka has clearly benefited from being the closest neighbor to the most powerful country in the region. It is also in India’s interest to ensure stability in its backyard.”

In October, Wickremesinghe – who took over as president in July after Rajapaksa stepped down – unveiled a plan for Trincomalee, which has a natural deep-sea port, including a proposal to work with India to develop a strategic port there, in addition to creating a new industrial zone and energy hub , details from his office indicate.

India and Sri Lanka are also in preliminary discussions under Art submarine cable to connect the two countries’ power grids and a fuel pipeline from southern India to northern Sri Lanka – projects that together could cost at least $4 billion, according to officials from both countries.

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

In northwestern Sri Lanka, India’s Adani Group is awaiting regulatory approvals for two $500 million wind power projects in the Mannar region, Sri Lanka’s Energy Minister Kanchana Wiesekera said said in August.

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

Both asked not to be named as discussions are ongoing.

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

The pursuit of oil and gas exploration was part of the discussions in June, the source familiar with the talks said.

YUAN WAN 5

Foreign Minister Sabri said the Sri Lankan government is keen to tap into India’s growing economic power, particularly through renewable energy and infrastructure projects, while maintaining key relationships with other major 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 became embroiled in a diplomatic row over a Chinese military research vessel, the Yuan Wang 5, which docked in the southern Sri Lankan port of Hambantota.

At the time, Indian foreign ministry spokesman Arindam Bagchi said that although 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 the financial crisis this year, Sri Lanka still needs China – one of its biggest creditors – to agree to a debt restructuring plan, along with India and Japan, to seal the deal for an IMF loan, Sri Lankan officials said.

“Chinese investment is very important, relations with China are very important,” Sabri said.

“So I don’t think even India or anyone else expects Sri Lanka not to work with China. To be fair to them, none of them asked us.’

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

Our standards: Thomson Reuters Trust Principles.


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