Modi’s Visit to Sri Lanka: “Neighbourhood First” Diplomacy

Prime Minister Narendra Modi’s recent visit to Sri Lanka assumes greater significance as India seeks to further deepen its ties with the neighbouring island nation where China has been trying to expand its influence. Successive governments in Sri Lanka have maintained a very friendly relationship with India even at times of diversified sensitive diplomatic issues. In recent years, the relationship has been further enhanced in view of harnessing the mutual interest in the expanded fields of economic development, culture, defence, as well as broader understanding on key strategic concerns.It is evident that a new and transformative phase in thebilateral relations of India and Sri Lanka began when PM Modi made a historic visit to Sri Lanka in March 2015, the first standalone bilateral visit to Sri Lanka by an Indian Prime Minister since 1987. Since then a lot of bilateral visits have taken place at the highest level.

It is not common for an Indian Prime Minister to visit a foreign country twice in a period of two years. That Prime Minister Modi has chosen to visit Sri Lankareiterates India’s commitment to promoting prosperity in the neighbourhood and affirms the continued support of India for realizing the vision of the Sri Lankan leadership for a stable, peaceful and prosperous Sri Lanka[i]. The Island nation is an integral part of PMModi’s “Neighbourhood First” policy. His idea of “Neighbourhood First” recognizes that India’s growth is linked to the prosperity of its neighbourhood. PMModi has a vision of a neighbourhood where trade, investment, ideas and people move seamlessly across borders, and India will continue to work towards thisvision of promoting greater connectivity among countries in its neighbourhood and so a key element of this vision is strengthening bilateral ties with Sri Lanka.Although India has always maintained a friendly and cordial relationship with Sri Lanka and has extended support and assistance but China’s recent inroads into Sri Lanka have accelerated India’s engagement in the island nation more proactively&, thoughtfully. It is against this backdrop that the recent visit of PM Modi to Sri Lanka assumes greater importance.His visit to the island nation, not only reflects the “qualitative transformation” in bilateral ties of India and Sri Lanka but in the long term, it will also be helpful in checking Beijing’s growing ambitions & influence in the island nation.

In his two-day official visit to Sri Lanka on 11th-12th May 2017, PM Modi participated in the opening ceremony of the 14th International Vesak Day celebration in Colombo as a chief guest. Hetook part in a traditional lamp-lighting ceremony at Colombo’s SeemaMalaka Temple. During the visit, he also addressed a big gathering of 30000 Sri Lankan Tamils where he stressed on promoting values of peace, inclusiveness and compassion in policies and conduct towards Tamils. He also inaugurated a hospital in Dickoya in Central Province of Sri Lanka[ii].

On the economic front, India and Sri Lanka also enjoys a robust trade and investment relationship. India’s development cooperation with Sri Lanka amounts to US Dollars 2.6 billion[iii]. India is among the top five investors in Sri Lanka.Indian investments in Sri Lanka are in diverse areas including petroleum, retail, IT, financial services, real estate, telecommunication, hospitality & tourism,banking and food processing (tea & fruit juices), metal industries, cement, glassmanufacturing, and infrastructure development (railway, power, water supply).On the other hand, the last few years have also witnessed an increasing trend of SriLankan investments into India. Significant examples include Brandix, MAS holdings, John Keels, Hayleys,and Aitken Spence (Hotels), apart from other investments in the freight servicing andlogistics sector[iv].

India has certain advantages in its relations with Sri Lanka as compared with China. They are driven bytheir shared social, religious and cultural traditions over hundreds of years. But for India, Sri Lanka’s external relations – particularly with China and Pakistan will always be an important concern because Sri Lanka’s geo-strategic location in Indian Ocean can be used by other countries to jeopardise India’s security interests and this has always been a cause of anxiety in the Indian security establishment. Presence of any external powers in the Island nation poses a threat to the regional stability in the entire Indian Ocean region because it may change the balance of power in the region.

China’s foray into Sri Lanka in recent years has heightened India’s engagement in the island nation, separated by the small stretch of the Palk-Strait. The growing friendship between China and Sri Lanka on the basis of China’s multi-billion dollar investments in Sri Lanka is of concern to India, not on economic grounds but on the larger geostrategic consequences of this investment and the subsequent Chinese Naval presence in India’s immediate neighbourhood. Unlike India, China and Sri Lanka do not share cultural and linguistic affinity and proximity or political culture or even affiliation to any multilateral body like the Commonwealth. In spite of this asymmetry, China’s strategic interest and aid diplomacy have led to close cooperation between the two, much to the anxiety of India.Chinese presence in Sri Lanka hasfar-reaching impact in terms of economic, military, political and socio-cultural aspects. In this context, India has gradually increased its presence in key geographical areas of Sri Lanka by establishing various Consulates in Hambantota, Jaffna and Kandy to keep their, diplomatic leverage as well as to monitor Chinese activity in Sri Lanka.

On economic front, China is investing in various infrastructure projects in Sri Lanka by extending huge loans to their governments. While extending loans for infrastructure projects arein order. The projects,in which China has invested in Sri Lanka, are often intended to facilitate Chinese access to natural resources, or to open the market for low-cost Chinese goods and not to support the local economy. In many cases, China even sends its own construction workers, minimizing the number of local jobs that are created.As a result of Chinese investment,Sri Lanka is becoming ensnared in a debt trap that leaves them vulnerable to China’s influence.Sri Lanka’s estimated national debt is US$64.9 billion, of which US$8 billion is owed to China. The average interest rate on the loans sanctioned by China to Sri Lanka is above 5%[v]. Specifically for the Hambantota Port project, Sri Lanka borrowed US$301 million from China with an interest rate of as high as 6.3 per cent[vi], while the interest rates on soft loans from the World Bank and the Asian Development Bank (ADB) are only 0.25–3 per cent[vii]. So at present Sri Lanka is facing challenges in debt repayments because presently more than a third of Sri Lankan government revenue is going towards servicing Chinese loans.Several of the projects that have been completed by China in Sri Lanka are now bleeding money. Sri Lanka’s decision to allow Chinese firms taking over 80% of the total share and a 99-year lease of Hambantota port caused widespread public outrage and violent protests in the country. In addition, Chinese firms have been given operating and managing control of Mattala Airport, built with Chinese loans of $300-400 million, because the Sri Lankan government is unable to bear the annual expenses of $100-200 million.Sri Lanka’s MattalaRajapaksa International Airport, which opened in 2013 near Hambantota, has been dubbed the World’s emptiest. Likewise, Hambantota’sMagampuraMahindaRajapaksa Port remains largely idle.Sri Lanka was being forced to sell its stakes in Chinese-financed projects and has handed over their management to Chinese state-owned firms in some cases because they were not able to pay the mammoth debt. In exchange for rescheduling repayment, China is pushing Sri Lanka to award it more contracts for additional projects, thereby making their debt crises interminable. So ultimately China’s real objectives have always been commercial penetration and strategic leverage.

In the maritime domain, although Naval cooperation between India and Sri Lanka has been traditionally strong, encompassing a wide span which includes operational interactions through bilateral exercises, Training, Port Calls, Capability Building and Capacity Augmentation initiatives, but the PLAN’s (Chinese Navy) deployment of anti-piracy ships in the Indian Ocean region (IOR) since the last decade and the docking of a Song-class diesel-electric submarine in Sri Lanka’s Colombo port in September 2014 has been an enormous source of apprehension in India[viii]. Although in a shift to its previous policy, Sri Lanka denied the permission to China of docking one Chinese submarine in Colombo this month[ix].

In conclusion, there is an opportunity to achieve a quantum jump in the bilateral relationship between India and Sri Lanka across different fields.Under Modi, the partnership has taken a sharp positive turn. Both countries have been willing to engage in high-level diplomacy and bilateral visits have increased manifold. India’s developmental assistance to Sri Lanka in various projects provides an opportunity to island nation to rethink its strategy on key investment issues and save itself from the downside of China’s investment in terms of debt trap. PM Modi’s ‘Neighbourhood First’ diplomacy provides an opportunity to India to consolidate its bilateral relations with Sri Lanka which are built on shared social, religious and cultural traditions over hundreds of years.

(Siddharth Singh is Research Fellow with India Foundation)

[i]https://www.mea.gov.in/Journeys_Across_Continents/index.html

[ii]http://economictimes.indiatimes.com/news/politics-and-nation/narendra-modi-inaugurates-multi-specialty-hospital-in-sri-lanka/articleshow/58641747.cms

[iii]http://pib.nic.in/newsite/pmreleases.aspx?mincode=3&speech=S

[iv]ficci.in/spdocument/20182/StatusPaperIndiaSriLanka.pdf

[v]http://lankanewsweb.net/news/item/4719-china-sri-lanka-at-loggerheads-over-interest-rates

[vi]http://www.atimes.com/china-sri-lanka-loggerheads-interest-rates/

[vii]https://www.adb.org/publications/basic-statistics-2017

[viii]http://timesofindia.indiatimes.com/india/Chinese-submarine-docking-in-Lanka-inimical-to-Indias-interests-Govt/articleshow/45025487.cms

[ix]http://timesofindia.indiatimes.com/world/south-asia/sri-lanka-refuses-permission-for-chinese-submarine-to-dock-at-colombo-port-sources/articleshow/58629743.cms