How A Developed Sri Lanka Is In India’s Interest
Sri Lanka is geostrategically key to India’s foreign policy making. Long-term ties, from energy to trade, can be built on cultural affinity and secured with New Delhi helping Colombo steer its way to economic stability
Talal Rafi
Indians were once maritime champions, pioneers of shipping. The country’s north has land borders dominated by two nations (Pakistan and China), neither of which has been on friendly terms with New Delhi. It makes sense for India to become a marine power given the ocean to its south is one of the world’s busiest shipping routes and control over it can augment India’s global influence. There is only one country that geographically sits between India and the South Pole, and that is Sri Lanka — of strategic importance to Indian foreign policy.
Last month, India extended debt payments of $1.7 billion due from Sri Lanka thus preventing Sri Lanka from defaulting yet again. The Indian government was proactive in extending the payments via diplomatic channels without the Sri Lankan government having to engage with the Indian government. This was a monumental gesture by the Indian government to the new, barely month old, Sri Lankan government. This reinforces the importance that Sri Lanka plays in Indian foreign policy thinking. India played a much larger role in 2022.
Early 2022, Sri Lanka was staring at a nightmarish situation as it only had $1.6 billion in reserves but had to repay $6.9 billion by end 2022. At this point, Sri Lanka was shut out of international capital markets and its foreign exchange from tourism, worker remittances and exports were simply not enough to sustain Sri Lanka’s economy. It defaulted in April 2022. None of its many friends came to Sri Lanka’s aid except India with $4 billion save. The Indian government’s ‘neighborhood first’ policy came to Sri Lanka’s need — India seen as big brother. But India also knew the strategic importance of long-term relations with Sri Lanka and consequences of a destabilised Sri Lanka.
Strategic control of shipping lanes | As an emerging global power set to be world’s third largest economy soon, influence over the Indian Ocean is vital for New Delhi. Indian Ocean south of Sri Lanka is among the busiest maritime routes where much of the world’s oil and other goods are shipped between the Middle East, Southeast Asia and East Asia. Sri Lanka is the closest nation to the south of India, it nearest point at a distance of a little over 30km. Sri Lanka being a much smaller country with only 22 million people, is of little threat to India, but the threat India would take much more seriously would be if a rival great power were to build influence and gain a stronghold in Sri Lanka. For New Delhi, a pro Indian or even a neutral government at Colombo is in its best interest.
Over 80% of India’s oil imports and 90% of its trade volume come through Indian Ocean. Any rival power gaining influence here using Sri Lanka or the Maldives can seriously impact India’s economic security. China and US vie for greater influence over the region. The Maldives has a government formed on an anti-India rhetoric while Sri Lanka’s government also has had pro China tilt in the past. In geopolitical considerations, New Delhi thus take the two nations to its south very seriously. Sri Lanka declared bankruptcy in 2022 and the Maldives came close to bankruptcy this year. This too is of concern to India, for economically vulnerable nations can draw in rival world powers. India has already seen how a debt for equity swap worked in Sri Lanka when Colombo had to give Hambantota Port in its south to a Chinese firm on a 99 year lease.
Tamil ties | Sri Lanka has a Tamil minority that shares ethnic and cultural ties with people of India’s southern state of Tamil Nadu. Sri Lanka’s Tamil population accounts for around 15% of its population. This also makes Sri Lanka crucial to domestic politics in India as Tamil Nadu’s political leaders influence New Delhi to safeguard interests of Sri Lanka’s Tamil population. Sri Lanka thus important to Indian foreign policy making, has led New Delhi to initiate several development projects and grants especially in the Tamil-dominated north of Sri Lanka, also one of the island nation’s poorest parts. In terms of pushing for greater rights for the Tamil people, the Indian government favours implementation of the 13th amendment to the Sri Lankan constitution.
Sri Lanka can benefit economically through Tamil Nadu, India’s second most industrial state and among the most developed and fastest growing state economies. According to Deloitte, Tamil Nadu in itself could become a $1 trillion economy by 2034. Greater collaboration between the South of India and Sri Lanka will greatly boost the economy of Sri Lanka.
Economic integration | There is great potential for greater economic integration between India and Sri Lanka on digital connectivity, tourism, shipping and air connectivity. Sri Lanka can act as a gateway for Indian companies to enter South East Asia and West Asia. Sri Lanka has good relations with South Asian countries and with global powers including the United States and China. It could be an additional gateway for the world to enter India. If the Sri Lankan government can implement IMF reforms and liberalise its economy, helping it become a developed nation soon, India stands to greatly benefit in the long term.
For starters, an advanced and developed Sri Lanka with greater economic integration with India will not be vulnerable to influence by India’s rival world powers, such as Singapore for example. Singapore is not dictated to by any world power because of its economic advancement. Similarly, a developed Sri Lanka with strong economic ties and greater trade with India, will be a buffer against rival world powers.
Trade is also a vital tool India can use constructively. For instance, when Southeast Asian nations came together to form ASEAN, it was largely a pro-western grouping. But today it is a neutral association due to increased trade with China. China is ASEAN’s largest trade partner, which results in ASEAN member countries having a strategic interest in wanting to have greater economic ties with China. In similar manner, if India can increase trade with Sri Lanka, it will result in future Sri Lankan governments having relations with India as a strategic economic priority.
Energy security | With southern India developing rapidly, India’s energy demands are also increasing. Similar to the energy partnership between India and Bhutan, a similar framework between India and Sri Lanka would greatly benefit both nations. Sri Lanka faced an energy crisis in 2022, with 12-hour power cuts. Connecting the electricity grids of both nations could help Sri Lanka avert a similar situation in the future. Sri Lanka also has a large potential for energy generation but lacks the financial and technical investments required to exploit and utilise this potential.
According to World Bank, Sri Lanka’s offshore wind energy potential itself can exceed its domestic demands. It has great potential for solar power generation. Tamil Nadu is growing at a double digit pace in nominal GDP terms — Sri Lanka could be a net exporter of energy to India. By importing energy from Sri Lanka, India would also reduce its exposure in importing energy through global shipping lanes and from West Asia, caught in another cycle of instability due to regional geopolitics .
Diplomacy & trade | Good relations with Sri Lanka is key component of India’s ‘neighbourhood first’ policy. Though Sri Lanka has limited influence on the global stage, it has emerged as a voice for India. Recently, Sri Lanka’s opposition leader stated that India should have a permanent seat at the UNSC. Sri Lanka’s foreign policy has also revolved around non-alignment but it has always prioritised India’s security interests.
Among India’s initiatives to strengthen infrastructure, boost economic stability, and enhance bilateral trade with Sri Lanka are renewable energy projects in the Northern Province, development of Sampur solar power plant, and plans to interconnect the two countries’ power grids. Additionally, India supports the expansion of the Kankesanthurai port, alongside plans to construct an oil pipeline from Nagapattinam to Trincomalee. These efforts aim to transform Trincomalee into a strategic hub in the Bay of Bengal. India also has a large number of investments in sectors such as banking, hotels and manufacturing in Sri Lanka, essential to increasing its soft power influence in the island.
Counterbalance to Chinese influence | New Delhi’s view of Sri Lanka is also as a buffer against China’s growing influence in its neighborhood. Sri Lanka governments in the past from 2005-2015 and 2019-2022, leaned towards Beijing to an extent. Beijing is also Colombo’s largest bilateral lender. With Maldives also electing a pro-China leader and the India-friendly government in Bangladesh collapsing earlier this year, Sri Lanka would be a priority for New Delhi.
India acknowledges the geopolitical significance of Sri Lanka, coming to the island nation’s aid in 2022 when it needed it the most. But Sri Lanka remains vulnerable to foreign influence as long as Sri Lanka’s economy is weak. The strategic advantage this brought India will be strengthened into a long-term relationship through infrastructure investments, trade, cultural diplomacy and energy cooperation. Initiatives such as renewable energy development, power grid integration, and the Trincomalee oil pipeline not only drive Sri Lanka’s economy but also advance India’s strategic interests in the Indian Ocean region.
Ultimately, a stable, economically resilient Sri Lanka with deeper connections to India will act as a counterbalance to rival powers like China and enhance India’s influence in the region. This partnership aligns with India’s long-term goal of regional dominance, while also securing its energy needs, trade routes, and geopolitical interests.
Going forward, India can focus on all the above areas to improve and strengthen relations with Sri Lanka, and include collaborating with Sri Lanka on regional manufacturing supply chains. Its relationship will be further integrated with digital connectivity, power grid connection, and tourism. But most significant will be India’s influence and support in helping Sri Lanka steer through its economic crisis. The political consensus in Sri Lanka on the need for better relations with India and a sense of gratitude to New Delhi for coming to its rescue are good signs of ties deepening in the coming decades.
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Talal Rafi is an Economist and Expert Member of World Economic Forum. Views expressed are personal.
