Sri Lankan crisis: Good time to push back against China’s growing clout in India’s neighbourhood First Post 19 Jul 2022 Maj Gen Harsha Kakar

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Sri Lankan crisis: Good time to push back against China’s growing clout in India’s neighbourhood First Post 19 Jul 2022

          It is well established that Sri Lanka has defaulted on its payments and is in the throes of an economic crisis. With lack of funds for imports, prices have skyrocketed, resulting in public anger. Calls for resignations of members of the Rajapaksa family initially led to the resignation of Mahinda Rajapaksa, the Prime Minister, as also his brother Basil, the finance minister. The President, Gotabaya Rajapaksa, continued holding onto power and attempted to form a unity government. Public pressure forced him to flee and subsequently resign.

          The uprising against the current ruling dispensation in Columbo was peaceful. There was no violence and no hate speeches. It was an organized people’s movement seeking a change in government. The storming of the Presidential palace, the office of the Prime Minister and burning of the residence of Ranil Wickremesinghe, the current officiating President, were the only signs of public anger.

          Rumours flowed that it was India that facilitated Gotabaya’s exit from Columbo. The Indian High Commission denied the same. It stated, ‘High Commission categorically denies baseless and speculative media reports that India facilitated the recent reported travel of Gotabaya Rajapaksa.’ Elections for the new President are scheduled on 20th July.

          Earlier, for the second time in months, the Indian High Commission denied reports about Indian troops being moved into Sri Lanka. It stated, ‘The High Commission would like to categorically deny speculative reports in sections of media and social media about India sending her troops to Sri Lanka.’ Anti-India rumours are spreading across the island, aimed at disrupting Indo-Sri Lanka ties.

          On the contrary India has been supporting Sri Lanka in multiple ways. India provided Sri Lanka with aid exceeding USD 2.5 Billion. The RBI extended a currency swap of USD 400 million and deferred payments owed by the Central Bank of Sri Lanka worth several hundred million dollars. The Indian High Commission stated, ‘India’s prompt assistance for the people of Sri Lanka at this hour has been appreciated by all sections of the Sri Lankan society.’

          S Jaishankar stated in a recent press interaction, ‘The situation in Sri Lanka is very sensitive and complicated. Our commitment is to support the Sri Lankan people because they are our neighbours. Our focus is on Sri Lanka’s economic situation and how we can help them. We cannot respond to everything that comes on social media.’ He was referring to anti-India comments flooding Sri Lankan social media.     

          There is no doubt that India is seeking to regain it lost space in Columbo. Currently Indian support exceeds that provided by any other country. Yet internal political differences result in rumour mongering. A perception is that India has a hidden agenda in supporting Sri Lanka including seeking concessions for the Tamilian minority in return, implying interference in internal matters. A Sri Lankan official had stated in Jun, prior to withdrawing his comments, that India was pressurizing the country to award a power project to the Adani Group.

Simultaneously, there are views that the current financial crisis is because China pushed unsustainable projects as also no records of Chinese payments exist, implying much of it could have been consumed as bribes. Chinese offer of a currency swap, at the peak of the economic crisis, came with riders which Sri Lanka could not meet.   Anti-China sentiments are running high. The country owes 10% of its foreign debt to China. With the departure of the Rajapaksa’s any pro-China tilt is unlikely.

For Pakistan, whose economic situation is close to Sri Lanka there are major lessons. It also faces foreign exchange shortfalls, with the Rupee crossing 200 to a dollar, impacting imports. The IMF has cleared the next tranche of assistance with multiple riders and restrictions including price hikes. Inflation is at an all-time high, adding to public anger. With the IMF clearing its loan, other countries may also provide financial support, which will have to be returned with interest in some timeframe.

As per Pakistan’s economic survey 2021-22, the country owes a whopping USD 87.7 Billion. Of this 14.5 Billion is owed to China, 14 Billion to the Asian Development Bank and 18 Billion to the world bank. In addition Pakistan owes individual Chinese banks, details of which are unavailable. Most Chinese loans are at far higher interest rates.

Substantial part of Pakistan’s current budget is earmarked for loan servicing or defence, with almost nothing for development, education or social security. Political instability and a deteriorating internal security scenario have resulted in depleting foreign inflows. Imran Khan accuses the government of corruption inciting the public. Pakistan is a volcano set to burst. Unless the government acts, public anger may rise leading to a situation similar to Sri Lanka.

          Maldives is another nation in a debt trap. Post the inauguration of Solih government in Nov 18, the Chinese ambassador handed over an invoice for USD 3.2 Billion owed to China. India continues to support the nation. For Nepal and Bangladesh, Sri Lanka is a lesson to imbibe. Accepting Chinese loans for projects which are unsustainable as also with high rates of interest could add to financial woes. Currently, Bangladesh is stable, has repaid all its dues and faces no food shortages. It continues to restrict Chinese investments.  

Nepal learnt quickly and though it joined the BRI, has avoided commencing Chinese projects. In a meeting with the Chinese Communist Party leader, Liu Jianchao, in Kathmandu last week, Nepalese prime minister, Sher Bahadur Deuba, mentioned, ‘Nepal is not in a position to afford commercial Chinese loans for infrastructure building under the BRI because the national economy is already under stress due to several reasons including the depletion in foreign currency reserves. Therefore, Nepal wants only grant assistance from China in the coming days.’    

For India, securing its neighbourhood from Chinese influence is a priority. Nations ignored its advice against joining the BRI. With the economic collapse of Sri Lanka, countries comprehended the ulterior motives of the Chinese dragon. While India cannot fund nations in a similar manner as China, it must seek to invest in projects which benefit the nation and its public. Simultaneously, it must support them in obtaining loans from global institutions. However, as earlier instances have recorded, there must not be an inordinate delay between acceptance and execution of projects. The further China is pushed, the better for India.    

Rising global prices due to the Russian-Ukraine crisis need Indian intervention in South Asia to support countries by easing trade barriers. With the near collapse of SAARC, India needs to concentrate on BIMSTEC (Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation) and BBIN (Bhutan-Bangladesh-India-Nepal) to provide economic security and bring neighbouring nations into its developmental fold. It is an Indian era which has risen in the subcontinent due to Chinese follies, which it must capitalize on.