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Handling India and China: Need to master the balancing act

01 Jan 2022

  • Don’t antagonise India on 13th Amendment: Dr. Jayatilleka
  • SL needs to find apolitical source for this emergency funding: Palihakkara
  • Restructure debt, seek more commercial-driven investment and transparency: Moramudali
By Skandha Gunasekara As Sri Lanka finds itself amidst a growing geopolitical power struggle between India and China – the need for a neutral foreign policy to manage relations with both superpowers while simultaneously benefiting from the economic connectivity – has never been more apparent for the island nation. Balancing China and India is not new to the traditions of Sri Lankan foreign policy. However, the last decade, and the last several years in particular, have seen turbulence in the management of Sri Lankan foreign policy, with hasty attempts to recalibrate causing the sensitive diplomatic relations of the small state to be strained unnecessarily. Geopolitical redlines Former Permanent Representative to the United Nations (UN) in Geneva Dr. Dayan Jayatilleka said that Sri Lanka must refrain from crossing the line when it comes to the geopolitical concerns of our closest neighbour, India. “The Executive has to understand what the redline of China and India is, and once he has understood what that redline is, he must not transgress it himself nor must he allow either power to transgress the redline while operating on and from Sri Lanka’s soil,” Dr. Jayatilleka told The Sunday Morning in response to a query on what needs to be done in order to better manage key diplomatic relations. Commenting on the geopolitics of the two superpowers, Dr. Jayatilleka opined that: “They are competing in Asia, in the Indian Ocean, and they are competing for Sri Lanka on the soil of Sri Lanka. So, if we are to survive as a state – embracing the entirety of the island and not becoming fragmented – then we have to balance the relationships very carefully with intelligence and prudence. And I do not see that happening.” He called the recent visit by a top Chinese diplomat to the northern coastal borders of Sri Lanka as a “mismanaged visit”, arguing that the Sri Lankan Foreign Ministry should have advised the Chinese diplomat about the sensitivity India has to the bordering region. Dr. Jayatilleka pointed out that repealing or changing the 13th Amendment to the Constitution would be a second redline for Indo-Lanka relations that the current regime would be crossing if such an action is taken. “Another redline the Sri Lankan Government doesn’t seem to think exists is the Indo-Sri Lanka Accord. This was a bilateral accord for whatever circumstance in which it was signed. At the core of the accord is the devolution of power to the Tamil people and the areas of Tamil speaking majority – of course, the devolution covers the whole country. The 13th Amendment is at the heart of the Indo-Sri Lanka Accord. Now, the present President has made numerous references of a negative and derogatory nature about the 13th Amendment and ministers such as Minister Sarath Weerasekara have publicly opined that the Indo-Sri Lanka Accord is null and void. One should not make a unilateral declaration about a bilateral declaration,” he commented. Last Sunday (26 December), it came to light that Sri Lanka and India would ink a deal to jointly develop the Trincomalee Oil Tank Farm. While this comes after 16 months of protracted negotiations between the two countries, it also brings to fruition a proposal envisioned some 35 years ago through the Indo-Lanka Accord where it stated: “The work of restoring and operating the Trincomalee Oil Tank Farm will be undertaken as a joint venture between India and Sri Lanka.” The inking of this deal comes at a time when New Delhi is posturing over Colombo, which is struggling with a crippling economic crisis and has been looking to invest in strategic economic assets to counter the ever-growing presence of China in the island nation. Dr. Jayatilleka however, noted that the Sri Lankan Government had a much simpler alternative to placate the Indians, instead of handing over a strategically important domestic asset, by reassuring New Delhi of the implementation of the 13th Amendment. “I would argue that giving strategically vital economic real estate to any power – India, the US, or China – is controversial and would evoke domestic turbulence. I’m not opposed to the deal over the Trincomalee Oil Tank Farms, but I must note here that former President Maithripala Sirisena and former President Mahinda Rajapaksa both managed to evade giving any more of the oil tanks to India despite requests. I think it would be much cheaper domestically, in terms of backlash, to give India the reassurance that it seeks on the 13th Amendment. Instead of doing that, President Gotabaya Rajapaksa has actually said ‘well, we’ll have to see what the positives and negatives are’. In as much as the devolution of power is at the centre of the Indo-Lanka Accord, that kind of statement demonstrates a sort of Trumpian unilateralism. It would be far easier to nail down the 13th Amendment and have a timeline for its full, if phased, implementation,” Dr. Jayatilleka proposed.  He said a positive move with the 13th Amendment was doubly important as a key election was coming up in Tamil Nadu this year and would assist Prime Minister Modi in his domestic politics. “One also has to remember that there’s an election coming up in Tamil Nadu in 2022 and Prime Minister Modi is visiting Tamil Nadu in January 2022. So what that means is that it would be dangerous to repeal the 13th Amendment in whole or in parts. It would also be doable and desirable to implement it because there would be very little domestic blowback as this has been a part of the Constitution since 1987 and there are more provincial councils in the south of the country than the north. There could be a blowback from the very narrow circle of the hardcore far right that surround President Rajapaksa, but not at the level of the masses and not at the political level,” Dr. Jayatilleka reasoned.  Meanwhile, former Foreign Secretary and former Ambassador to the UN in New York H.M.G.S. Palihakkara noted that Sri Lanka should look towards a politically neutral source for economic support to prevent being tied down by geopolitical obligations that would come as conditions for support from bilateral partners. “We need to go to an apolitical source for emergency funding, such as a multilateral organisation whose conditions we can always negotiate. Otherwise, bilateral development partners will not help you out of charity – they will help you, but with geopolitical conditions. Those are things that will be very difficult to negotiate. So, it is prudent to go for an apolitical emergency funding to address this emergency situation,” he said.  When we reached out to Strategic Advisor on Geopolitics and International Security Asanga Abeyagoonasekera on the matter of Sri Lankan foreign policy, he said that Colombo seemed to favour Sino-Lankan relations more often than not, and that it was hurting relations with New Delhi. “Sri Lanka’s foreign policy decision makers in the Rajapaksa regime prefers to ‘bandwagon’ with China due to China’s economic assistance and security to sustain the regime’s legitimacy. This was an open invitation and an opportunity for a rising power to expand its influence in the geostrategic island nation in the Indian Ocean. The regime has ignored India’s security sensitivity by its ‘hedging behaviour’, strategically aligning with China and rhetorically trying to satisfy India at the same time. China has shifted its strategy to include the minority community, the Tamilian community, while voting against UNHRC to address human rights concerns of the minority community, showing its dual policy posture. However, the shift depicts China is ready to accommodate and take a significant risk despite Colombo and New Delhi’s sensitivity on multiple Tamilian issues, including the Indo-Lanka fisherman disputes. Indo-China tension is clearly visible and has become a serious risk due to the weak foreign policy practised by Colombo,” Abeyagoonasekera stated. He too urged the Sri Lankan Government to follow a more neutral foreign policy to ensure Colombo had the support of all without being embroiled in geopolitical rivalries.  Economic juggling act Looking at the need for balance between India and China through an economic aspect, Economist and University of Colombo Department of Economics Lecturer Umesh Moramudali elaborated that Sino-Lankan relations had been strengthening progressively in the last 15 years, particular through three channels; debt, investment, and imports or overall trade. “When we talk about debt, China has been the largest bilateral lender to Sri Lanka during the last 15 years. Previously, bilateral lending mostly used to be from Japan and multilateral organisations such as the Asian Development Bank (ADB) and the World Bank. From 2005 or so China emerged as the major lender with the first of it being the development of infrastructure projects such as the Hambantota Port, Katunayake Expressway, and Mattala Airport. These were export credits, which means Chinese construction companies developed the projects. So, through that avenue relations were strengthened,” Moramudali explained.  On the other hand, India hasn’t been as present as China in an economic aspect. This is not to say that India provided less loans, but that China provided much more than they used to, and India was never a big lender to Sri Lanka. The difference is that China has more capacity than India to provide loans because of China’s significant trade surplus, resulting in Beijing having an excess in dollar reserves, empowering it to lend to countries. A less spoken fact, Moramudali noted, was the heavy investing China has made in Sri Lanka. He pointed out that China had now become Sri Lanka’s largest source of foreign direct investments (FDIs) and that here too India was playing second fiddle. “This is something a lot of people don’t talk about much, but a lot of FDIs have been coming in from China. China is the major source of FDIs for Sri Lanka and they include the Colombo Port City and many other projects. Again, India is lagging behind in this aspect and a lot of Indian investment hasn’t been coming into Sri Lanka. That is why I think India is somewhat concerned about their presence here and why they’re trying to get their foot in through the East Container Terminal through the Adani Group. When that failed they got the West Container Terminal. So, they know that there’s significant Chinese investment coming into Sri Lanka and are aware of the need for them to get a foothold as well. That’s why we see Adani now investing in a major wind power plant in Mannar as well as the development of the Trincomalee Oil Tank Farm. Before the 2005 era India had a small footing in Sri Lanka, one example being the Indian Oil Corporation,” Moramudali elaborated.  China has also surpassed India in the sphere of trade, despite India having the benefit of a Free Trade Agreement (FTA) with Sri Lanka, Moramudali said. “Trade is interesting because up until 2016 or so, Sri Lanka spent the most amount of money importing goods from India. But now we import the most from China. This is a recent phenomenon. One of the reasons this happened is that most of the raw materials for Sri Lanka’s apparel sector, such as yarn and fabric, is imported from China. Most of the electrical items are also imported from China. Even when there were recent import restrictions, China remained one of the top importers. This is interesting because India has a FTA with Sri Lanka and China doesn’t. This means India can export goods to Sri Lanka without paying any taxes, which results in us importing from India at a cheaper rate. So even with an FTA China has surpassed India in exporting to us. I think this also shows that India should be doing more. Sri Lanka tried to renew the FTA with India – the Economic, Technology, and Co-orporation Agreement (ETCA). Even though it went through a few rounds of negotiations, it stopped after the Constitutional coup happened, and discussions never restarted. The Indo-Sri Lanka FTA was the very first FTA for both the countries. So, it had its issues, and the idea of ETCA was to fix some of those issues and also incorporate service trade. But there was local opposition in Sri Lanka to the service trade aspect,” Moramudali noted. He said that it was clear India was now actively seeking to establish a geopolitical foothold by giving economic kudos such as investments and credit lines to Sri Lanka, pointing to several major projects such as the billion-dollar investment by Adani into a renewable energy project in Mannar. However, he questioned the cost of the renewed investment enthusiasm India has found in Sri Lanka.  “We are now seeing more visible strengthening of economic relations by India. One is through debt – we keep hearing about getting credit lines from India. Secondly, we see Indian investments coming again – here I’m referring to large scale investments to strategically important projects such as the Adani Group’s moves regarding the Colombo Port, as well as Adani investing in the Mannar wind power plant and the development of the Trincomalee Oil Tank Farms. We can see that India is now reacting proactively. The question is, at what cost?” Moramudali questioned.  Moramudali warned that while it was beneficial to capitalise on the geopolitical rivalry of the two superpowers to gain economic benefits, there could be significant political costs that come along with it. “We are playing a power game with these two countries at the moment, and it is not a healthy way of solving our economic problems. It’s good to have investments coming, may they be from China or India, but we don’t know what kind of political compromises we may have to make. These may not even appear on paper. We might see various economic deals happening, but we don’t see what is happening behind closed doors. I find it problematic to rely too much on politically motivated investments and using these kinds of tools to resolve the crisis we are in. That is why I advocate for restructuring debt and finding solutions to our domestic problems. We shouldn’t get caught in the rivalries of other countries,” Moramudali cautioned.  He said that there were many economic rewards that Sri Lanka had failed to reap from its relations with India and China, one being the massive export market both nations have to offer. “These are very big export markets if we can properly tap into them. We are talking about a $ 2.5 billion market if we enter into a FTA with both these countries under somewhat favourable terms that would benefit Sri Lanka. Regardless of an FTA, if we properly tap into Chinese and Indian markets, that can help to overcome our export problems. Once you get access and start selling a few products, you can actually make a lot of money because the market is big. This is one big benefit of having good relations with these two countries,” Moramudali explained. Their ability to provide foreign currency loans was another plus that Sri Lanka could harness if proper foreign policy was followed to balance the two nations. “Secondly, these two countries have the capacity to provide foreign loan support rather than relying so much on international sovereign bonds. For example, we saw the Chinese Development Bank (CDB) providing some foreign currency term financing facilities. In my opinion, this is a relatively better option than sovereign bonds. India can provide swaps. So that option is there to get support for foreign currency financial loans, because both countries have much better reserves than us. But at the same time I would say not to rely too much on export products in the way that we have,” Moramudali concluded. 

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