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October 30, 2023 @ 7:30 am - 11:30 pm


The situation in Sri Lanka has faced a significant economic crisis, leading to a decline in the country’s financial stability. However, India has played a pivotal role in extending support, which not only has helped alleviate the economic distress but also strengthened the bilateral relationship between both nations.

Sri Lanka’s Economic Crisis

Economic Decline:

Sri Lanka’s economy shrank by 8% in 2022 and is anticipated to contract further by 3.5-4% this year.

Accumulated Debt and Record Inflation

Borrowings and Inflation: Years of accumulated borrowings have led to an alarmingly high national debt, contributing to record inflation rates.

Currency Depletion: A significant decline in the country’s foreign currency reserves, with only $2.31 billion available against debts over $4 billion.

Twin Deficits Economy

National Expenditure: The country faces an economic structure with national expenditure surpassing national income.

Trade Deficit: The imports of essential items exceed exports, leading to substantial trade imbalances.

Pandemic Impact

Tourism and Remittances: The economic fallout from the COVID-19 pandemic affected vital sectors like tourism, reducing foreign remittances and impeding economic recovery.

Inflation Triggered by Russia-Ukraine War

War-Induced Inflation: The Russia-Ukraine conflict substantially escalated inflation in Sri Lanka, particularly in essential commodities such as crude oil, sunflower oil, and wheat.

Agricultural and Investment Crisis

Agricultural Setback: The government’s initiative to enforce 100% organic farming by banning chemical fertilizers led to a drastic fall in agricultural output, notably affecting rice and sugar production.

Foreign Direct Investment Decline: Under President Gotabaya Rajapaksa’s administration, foreign direct investment (FDI) declined significantly, highlighting a notable decrease in FDI figures.

India’s Role in Support

Financial Assistance:

India extended comprehensive support, amounting to about $4 billion in 2022, aiding Sri Lanka.

Petroleum and Currency Support:

India provided a $500 million line of credit for petroleum, along with a currency swap of $400 million with the Central Bank of Sri Lanka.

Supply of Essential Commodities:

India’s $1 billion credit facility helped procure crucial necessities like food, medicine, fuel, and raw materials for industries.

Debt Relief and Agricultural Boost:

Debt payments around $2 billion were deferred, and India supported agricultural recovery through a $50 million credit line for fertilizer procurement.

Evolving Trade Relations

Historical Trade Agreements:

A free trade agreement signed in 2000 between India and Sri Lanka increased bilateral trade to $6.2 billion from $600 million.

Prospects and Barriers:

Discussions for an Economic and Technology Cooperation agreement have faced opposition, although negotiations have recently resumed.

Future Prospects and Collaborations

Tourism and Trade Prospects:

The revival of tourism, especially with the increasing number of Indian visitors, showcases promising future prospects. Trade discussions and agreements signify further collaboration.

Colombo Port Expansion and Investments:

The expansion of Colombo’s port, crucial for India-related cargo, and significant investments by Indian firms reflect confidence in Sri Lanka’s economic resurgence.


Sri Lanka’s economic crisis found an ally in India, whose substantial support has not only contributed to alleviating immediate hardships but has also fostered a path towards long-term economic recovery. The revival of trade relations, focused initiatives for economic growth, and enhanced bilateral collaborations suggest an optimistic future for both nations.

Mains Question:

Discuss the role played by India in supporting Sri Lanka during its economic crisis and the subsequent impact on bilateral relations. (150 Words) 10M


October 30, 2023
7:30 am - 11:30 pm
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