India Steps In: Key Measures to Revitalize Sri Lanka's Troubled Economy

India's support included supplying LNG for energy needs, providing grants for railway enhancements, port upgrades, and initiating a new ferry service, showcasing a commitment to strengthening infrastructure and energy capabilities.

P24 News Media

December 17, 2024

1 minute

India

On Monday, India introduced a comprehensive set of initiatives aimed at enhancing development as well as physical and energy connectivity with Sri Lanka. During this occasion, Prime Minister Narendra Modi pledged continued support for Colombo's efforts towards economic stabilization while meeting with President Anura Kumara Dissanayake, who embarked on his maiden international visit after taking office in September.

The Indian aid package, which includes the provision of liquefied natural gas (LNG) for power generation, financial grants for railway upgrades and port enhancements, along with the initiation of a new ferry service, was unveiled following discussions between Modi and Dissanayake. This move reinforces India's commitment to its "Neighbourhood First" policy, recognizing Sri Lanka as a significant partner in its development cooperation endeavors. India not only stands as Sri Lanka’s largest trade partner but also ranks as the foremost source of tourists and investments in the nation.

Modi emphasized the importance of bilateral initiatives during a joint media interaction, stating, "We shall work towards establishing electricity grid connectivity and multi-product petroleum pipelines." He indicated that the Sampur solar power project would be expedited, and assured that LNG supplies would be provided to support Sri Lanka’s power plants. Additionally, he mentioned that both countries are committed to finalizing a trade agreement.

Dissanayake expressed gratitude towards India for its unparalleled support in stabilizing the Sri Lankan economy, encompassing comprehensive assistance that totaled $4 billion in emergency financing and foreign exchange aid. He acknowledged, "We faced an unparalleled economic crisis some two years ago and India stood by us to navigate through that turmoil. Furthermore, the support during the debt restructuring process has been invaluable."

In a joint statement, it was noted that Sri Lanka and India would collaborate on the punctual completion of ongoing projects funded by Indian resources, including the third and fourth phases of the Indian Housing Project, the Islands Hybrid Renewable Energy Initiative, and various community development projects. The two nations are also set to identify new areas for collaborative development that align with the objectives of the Sri Lankan government.

Regarding the energy sector, both nations aim to further discussions on the supply of LNG from India, establishing a high-capacity power grid interconnection, and trilaterally cooperating with the United Arab Emirates to construct a multi-product pipeline aimed at delivering affordable and reliable energy solutions. According to officials, this project anticipates technical and economic backing from the UAE to facilitate pipeline construction.

In the context of their collaboration to develop the Trincomalee Tank Farms, Modi and Dissanayake expressed their support for transforming Trincomalee into a regional energy and industrial hub, as conveyed in the joint statement.

In terms of connectivity, the resumption of the passenger ferry service between Nagapattinam and Kankesanthurai was met with approval from both parties. They also reached a consensus to reinstate the ferry route running between Rameshwaram and Talaimannar. Furthermore, a grant of $14.9 million will be allocated by India for the signaling system along the Maho-Anuradhapura railway line.

Foreign Secretary Vikram Misri, addressing the media, affirmed India’s ongoing commitment to aiding Sri Lanka in its financial recovery process following the economic downturn of 2022. This support has involved engaging with the International Monetary Fund (IMF) and playing a co-chair role within the Official Creditors’ Committee. Misri stated, "Our support has been timely, swift, and most importantly, unconditional, highlighting our role as a responsible and friendly neighbor."

In alignment with these commitments, India has transformed repayments amounting to $20.66 million across seven line of credit projects into grants. Additionally, a further grant of $61.5 million will be allocated to rehabilitate Kankesanthurai port, shifting from a previously proposed line of credit project.

Modi also reaffirmed India’s enduring commitment to assisting Sri Lanka's economic stabilization, with Misri conveying that the Prime Minister assured Dissanayake of an investment-driven and grant-centric approach to mitigate Sri Lanka’s debt while fostering long-lasting economic opportunities.

Furthermore, both sides formalized an agreement aimed at avoiding double taxation and preventing fiscal evasion concerning income taxes. They also signed a memorandum of understanding (MoU) to facilitate the training of 1,500 Sri Lankan civil servants over a span of five years at India's National Centre for Good Governance. Additionally, India announced a financial assistance program for 200 students from the University of Jaffna and Eastern University.