India Is Shipping Eggs To Sri Lanka! Why Was Lanka In Danger; What Is The Position After 1 Year, And What Contribution Has India Made In Supporting Its Neighbour To Get Back On Track?

Sri Lanka’s leading importing agency has announced that it will import one million eggs daily from five poultry farms in India to fulfil rising market demand.

According to Asiri Valisundara, head of the Lankan State Trading Corporation (STC), 20 million eggs were imported from India, 10 million of which were allowed into the market. Mr Valisundara stated that the eggs were imported from two chicken farms in India and that the Animal Production Department had also approved the procurement of eggs from three other farms. He moved on by saying that the imported eggs would be sold at රු35 (රු = Sri Lankan Rupee) apiece to bakeries, biscuit producers, catering services, and restaurants.       

What led Sri Lanka to slip into a crisis-hit economy a year ago?

Since last year, Sri Lanka has been experiencing a severe and unprecedented economic crisis. High inflation has decreased buying power, affecting many people’s livelihoods and reversing previous development achievements. After declaring its first-ever financial default in April of last year, the island nation is fighting to normalise its crisis-hit economy.

An extreme balance of payments crisis prompted Sri Lanka to default on over $50 billion in foreign debt in April 2022, sparking a crippling economic contraction and soaring inflation. Sri Lanka‘s GDP decreased 7.8 % in 2022, with year-on-year inflation reaching 69.8 % in September 2022 (as assessed by the Colombo Consumer Price Index, aka CCPI) and a reversal of past poverty-reduction successes. Protests by common Sri Lankans against family-dominated administration and economic mismanagement led to the resignation of President Gotabaya Rajapaksa and his brother Mahinda Rajapaksa’s government.

The world offers a helping hand, and India supports its neighbour!

In the meantime, India, along with the IMF, has tried to offer helping hands to the crisis-hit economy. Is there any relief from April last year to May this year? Let’s try to learn from the following statistics.

The Department of Census and Statistics asserted that Sri Lanka’s inflation, measured by the change in the Colombo Consumers’ Price Index (CCPI), fell to 25.2 % in May 2023 from 35.3 % in April. 

Month on Month change in CCPI.

The CCPI for all items was 192.3 in May 2023, representing no change in index point and a -0.02 % change from April 2023 on an expenditure value basis, when the index was 192.3. This reflects a decrease in the “Market Basket” expense amount of INR 43.05.

A 0.53% increase in food items and a 0.56% drop in non-food items commanded to the month-on-month change.

Contribution of Food and Alcoholic Beverages: 0.53%

Increases in value change were reported for the following.

• Sea Fish- 0.57%
• Vegetable- 0.23%
• Sugar- 0.08%
• Ginger- 0.04%
• Chicken- 0.02%
• Limes- 0.02%
• Garlic- 0.02%
• Potatoes- 0.02%
• Big Onions- 0.01%
• Dhal Mysoor- 0.01%
• Canned Fish- 0.01%

Decreases in value change were reported for the following.

• Fresh Fruits- 0.24%
• Milk Powder- 0.07%
• Eggs- 0.04%
• Chilli Powder- 0.03%
• Rice -0.02%
• Coconuts- 0.02%
• Coconut Oil- 0.02%
• Green Chillies- 0.01%
• Cowpea- 0.01%
• Turmeric Powder- 0.01%
• Jak- 0.01%
• Pepper- 0.01%
• Dried Chillies- 0.01%
• Dried Fish- 0.01%

Contribution of Non-Food things: -0.56%

Among the non-food items, decreases in value change were reported for the following.

• Transport- 0.25%
• Housing, Water, Electricity, Gas and Other Fuels- 0.17%
• Restaurants and Hotels- 0.12%
• Alcoholic Beverages Tobacco and Narcotic- 0.02%
• Clothing and Footwear- 0.01%
• Furnishing Household Equipment and Routine Household Maintenance- 0.01%

Also, there is an increase in value change for the following.

• Recreation and culture- 0.02%

However, an insignificant value change was witnessed for the following.

• Miscellaneous Goods and Services.

Along with that, the price indices of the following groups remained unchanged during the month.

• Communication.
• Education.
• Health.

Year on Year inflation.

• Food Group inflation fell to 21.5 % in May from 30.6 % in April.
• Non-Food Group inflation decreased to 27.0 % in May 2023 from 37.6 % the previous month. 

On a year-to-year basis, food commodities contributed 7.02 % to inflation in May 2023. 

The non-food products contributed 18.13 %. This was due to a spike in value change in groups of the following aspects.

• Housing, Water, Electricity, Gas and Other Fuels- 7.41%
• Transport- 2.46%
• Restaurants and Hotels- 1.88%
• Clothing and Footwear- 1.15%
• Health- 0.97%
• Furnishing Household Equipment and Routine Household Maintenance- 0.88%
• Miscellaneous Goods and Services- 0.85%
• Education- 0.85%
• Recreation and culture- 0.64%
• Communication- 0.58%
• Alcoholic Beverages Tobacco and Narcotic- 0.45%

All these data pave the way towards a linear upward momentum for the Lankan economy.

The efforts by the current Lankan government.

From late July 2022 onwards, the Wickremasinghe administration began adopting economic stabilisation measures, escalated discussions on an IMF programme, and sought debt restructuring pledges from Sri Lanka’s bilateral creditors. Concrete economic stabilisation measures included tightening monetary policy to control spiralling inflation, raising taxes, eliminating fuel and electricity subsidies, and launching a privatisation programme for commercial state-owned enterprises (SOEs) such as Sri Lanka Airlines, Sri Lanka Telecom, and Sri Lanka Insurance.

After obtaining assurances that all bilateral creditors’ funding or debt relief would be compatible with restoring debt sustainability under the Programme, the IMF Board authorised a long-delayed IMF Programme of US$2.9 billion over 48 months for Sri Lanka in March 2023.

Due to China’s tough zero COVID-19 rules and Chinese requests that its debt be treated differently than other bilaterals, talks with China—a holder of up to 8.5 % of Sri Lanka’s sovereign debt (June 2022)—were drawn out. Following high-level conversations between President Wickremasinghe and senior Chinese officials, China finally provided creditor guarantees satisfactory to the IMF.

How much importance does India hold in helping its island neighbour to get back on track?

The updated economic picture for Sri Lanka is supported by stabilising the volatile political environment, which allows ordinary Sri Lankans to go about their daily lives; decisive economic initiatives by the new Sri Lankan administration led by President Ranil Wickremasinghe; and timely Indian assistance.

India organised the largest bilateral assistance package in its history in response to crisis-hit Sri Lanka’s urgent need for external cash pending IMF Programme. The developing humanitarian situation impacting the Sri Lankan people, fears of a stream of refugees through the Palk Strait, and political pressure from South India all inspired this help. During the first half of 2022, India provided around $4 billion in help to Sri Lanka via credit lines, loans, and grants.

India’s contribution to Sri Lanka in 2022 will significantly outnumber that of other development partners, cementing India’s status as a prominent developing contributor. India has also conducted quiet diplomacy for Sri Lanka’s IMF program and has recently extended a US$1 billion credit line to the country until March 2024. 

As early as July 2020, the Reserve Bank of India agreed to a currency exchange deal with CBSL (Central Bank of Sri Lanka) for US$400 million in short-term funding to combat the COVID-19 pandemic.

Nonetheless, the shifting outlook for Sri Lanka provides it an excellent time for India-Sri Lanka relations to pivot from aid to deeper bilateral trade and foreign direct investment (FDI) flows. Adani Group recently announced a US$1,142 billion investment in wind power renewable energy facilities in the Mannar basin and the West Container Terminal in Colombo Port. Between 2005 and 2019, Adani’s massive projects accounted for roughly 67 % of all Indian FDI into Sri Lanka. A mile-long transmission cable going into the Indian Ocean is also being considered to improve bilateral electricity exchange. According to reports, the conglomerate Tata Group, which purchased Air India in January 2022, is now in discussions to purchase Sri Lankan Airlines. 

One can hope that these Indian infrastructure projects would revolutionise Sri Lanka by providing finance as well as skills and technology. The trust created by these investments may stimulate greater Indian FDI in the agro-processing, textiles and light manufacturing, and information technology services sectors in Sri Lanka.

Similarly, globalising Sri Lankan enterprises could invest in South Indian companies such as Brandix in textiles, Dilmah in tea and tourism, and John Keels Holdings in food processing and tourism. India and Sri Lanka should aggressively boost bilateral FDI flows by improving investor marketing, liberalising FDI entrance laws, and reducing red tape that impedes investors through digitisation. The commencement of discussions on a comprehensive India-Sri Lanka trade agreement to enhance regional rules-based commerce and FDI would be the cherry on top. The objective should be to reach a high-standard trade agreement that allows for deep integration in supply chains and services by implementing so-called 21st-century trade norms.

Conclusion.

The good news is Sri Lanka appears to be shifting from an economic crisis to a recovery route after one year.

Sri Lanka might return to economic normality in a few years if the IMF Programme is implemented. India-Sri Lanka relations should move from aid to deeper commercial and investment flows for mutual benefit. A rising Sri Lanka would be a significant victory for Prime Minister Narendra Modi’s Neighbourhood-First strategy, allowing India to outperform China as an emerging contributor during its G20 presidency.

Proofread & Published By Naveenika Chauhan