Foreign Policy Watch: India-Sri Lanka

What caused Sri Lanka’s worst economic crisis?


From UPSC perspective, the following things are important :

Prelims level: UN Human Right Council

Mains level: Paper 2- Crisis in Sri Lanka and contradictions in its polity


Sri Lanka’s ruling Rajapaksa family is facing mounting public anger, calls for resignations and political defections amidst the island’s worst economic crisis in its post-independence history.

Reasons for the crisis

  • 1] Overnight switch to organic farming and import ban on fertiliser: There was the decision to ban fertiliser imports and switch overnight to organic farming.
  • The decision was reversed after sustained farmer protests but not before damage had already been done to crop yields.
  • 2] Then, precious foreign exchange was wasted in propping up the rupee while imposing controls on key imports that led to shortages and price rise.
  • 3] For several months, as the crisis deepened with rolling power-cuts and shortages of essentials, the government refused to seek IMF assistance.
  • It has now relented on the IMF, but Sri Lanka’s economic distress has been prolonged and deepened by this indecision.

Contradictions in the Sri Lanka’s politics

  • While the immediate causes of popular anger are explicable, the crisis also reveals a more enduring contradiction at the foundation of Sri Lanka’s politics.
  • Sinhala nationalist-inspired policies: What this crisis shows is that Sinhala nationalist-inspired policies are no longer financially or politically viable.
  • Hardline approach toward Tamils: The Rajapaksas first rode to power in September 2005 on the wave of Sinhala nationalist antipathy against the then-ongoing Norwegian-mediated peace process with the LTTE.
  • Upon his election as president, Mahinda expanded the military and launched a full-frontal military offensive that ended with the LTTE’s total defeat and destruction in May 2009.
  • After the war, instead of seeking a political settlement with the Tamils, Mahinda Rajapaksa unrolled a de-facto militarised siege of the Tamil-speaking areas and population.
  • Assertive foreign policy: The hardline approach to the Tamils and their demands was also linked to a new, more assertive foreign policy.
  •  The government turned away the long-established pattern of alignments with Western states and India.
  • Mistrust of India: There is a long-standing mistrust of India amongst Sinhala Buddhist nationalists who see it as the source of historic Tamil invasions.
  •  The Rajapaksas translated this sentiment into policy, pushing back against Indian attempts to forge closer economic ties and a constitutional settlement of the Tamil question.
  • Ties with China: In place of these ties, the Rajapaksas ostentatiously set out to forge new alliances, principally with China.
  • The Rajapaksas also bet on a new geo-political optimism.
  • They believed that with China’s rise, Sri Lanka’s location on east-west trade lanes would become a prized asset.
  • They were confident that in the global competition for power triggered by China’s rise, international actors would be compelled to seek Sri Lanka’s favour for fear of “losing” it to the other side.
  • With this geo-political calculus in mind, they assuredly rebuffed Western and Indian demands.
  • None of the great powers who were supposed to be competing for Sri Lanka’s favour have stepped up to offer a bailout, although the sums are quite small by global standards.
  • The bid for total sovereign autonomy has crash-landed and yet the alternatives are also politically difficult.

More leverage to international actors

  • The irony of Sri Lanka’s push for total sovereign autonomy is that it has given international actors more leverage than they had before.
  • Going to the IMF will require concessions on human rights and good governance to secure preferential access to European markets.
  • At the same time, Indian bilateral assistance has conditionalities on clearing controversial investments.

Way forward

  • Push non-reversible changes: International actors who really want to help Sri Lanka should use this leverage to push for tangible and non-reversible changes in the treatment of Tamils and Muslims whatever leadership emerges in Colombo.
  • Eemilitarisation and normalisation of relations with the Tamils and Muslims: The crisis can serve as a reality check for the Sinhala nationalist leadership and electorate. The model of economic and political governance they have pursued is unsustainable, and the alternatives must be faced.
  • The most pressing of these is the demilitarisation and normalisation of relations with the Tamils and Muslims.
  • Sinhala political attention can perhaps then be turned to the other pressing failures of governance that have brought Sri Lanka to this state.


The Rajapaksas may be the principal protagonists of this crisis but the underlying script they have followed is a Sinhala Buddhist one and until Sri Lanka finds a new script it cannot find peace or stability.

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