Weeks after India’s External Affairs Minister visited Sri Lanka, President Gotabaya Rajapaksa gave the green light to the India-backed port project in Colombo. The project, earlier put on hold following protests by workers’ unions, is approved at a time when the island nation is seeking a $2-billion financial lifeline from New Delhi.
Reports suggest that the Rajapaksa government has been seeking a $1 billion currency swap and $1 billion debt moratorium from India to save it from sinking into a sea of foreign debt.
Sri Lanka’s economic situation has turned worse of late. As of September 2020, the country was facing $51.6 billion in foreign debt, according to the Central Bank of Sri Lanka. The foreign reserves dropped to $5.5 billion as of November 2020, down from the $7.6 billion in December 2019.
India’s commitment to supporting Sri Lanka in its economic revival was well reflected in 2020 when the Reserve Bank of India had given the nod to the $400 million currency swap proposal of the Central Bank of Sri Lanka.
In May 2020, Rajapaksa had sought the assistance of India for a currency swap of $400 million under SAARC (the South Asian Association for Regional Cooperation) arrangements and an additional $1.1 billion currency swap, bilaterally.
India’s Regional Power Equation
There’s another factor to the Sri Lankan President’s nod to the development of a container jetty in the Port of Colombo. Rajapaksa had referred to “regional geopolitical concerns” behind the government’s decision to revive the project.
Experts have pointed out that Rajapaksa revived the deal as India wants the signature project in the neighboring country to be on track.
This reflects New Delhi will “assert its regional weight” selectively. A source told Nikkei Asia: “India has sufficient strings to pull to remind the Sri Lankan government that its interests should be a priority over others. The ECT has become a new strategic marker by which India-Sri Lankan ties will henceforth be measured.”
About 66% of the transshipment business at the terminal is linked to India. The project is vital for New Delhi due to its strategic interest in having a presence at the port, which is located along one of the world’s key shipping lanes.
The Eastern Container Terminal is located at the newly expanded southern part of the Colombo harbor.
As per the deal, the Sri Lanka Ports Authority (SLPA) would retain a 51% stake and the remaining 49% would be invested by “India’s Adani Group and other stakeholders”, President Rajapaksa said on January 13.
The deal had been put on hold following protests from Sri Lankan trade unions. But Rajapaksa said that “the ECT will not be sold or leased”. The port’s worker unions have been resisting any foreign involvement in the ECT.
The domestic protests against a deal involving India raise suspicion since there were no “sustained agitations of the kind to stall Chinese investments through the past decade and more,” said Sathiya Moorthy while writing for the Observer Research Foundation.
He indicates how China is the only other big foreign investor in the country. It is known how Sri Lanka has fallen prey to China’s economic debt-trap strategy. After Colombo was unable to repay the massive Chinese loans, it eventually had to lease the Hambantota Port to China Merchant Port Holdings Limited for 99 years for $1.12 billion in 2017.