Recent media reports on the China-funded Colombo Port City Project in Sri Lanka has upped the ante for the Indian strategic community once more. They either believe that it is a new project or have forgotten the years-old origins of an ‘international financial hub’ on the lines of Dubai and Singapore—especially for China to try and gain ‘international currency’ status for its yuan on the lines of the US dollar and euro.
The Port City project has been around for close to a decade. The current hype is over the Sri Lankan Parliament hurriedly passing a law, cleared in advance by the nation’s Supreme Court, for the management of the SEZ under construction. Yes, how much China could and would use the facility to upset the regional economy, especially that of India, is a real concern. However, there are greater realities that India needs to evaluate through the medium- and short-terms.
The Port City is only the second China-funded project in Sri Lanka, involving Chinese possession of Lankan ‘territory’. Critics will now link it to the Hambantota Port project where China has a 99-year lease of Sri Lankan territory, compromising the nation’s sovereignty. There is a sort of national consensus and acceptance in the matter.
Internal Sri Lankan differences about the Port City, too, are only in the details. But no devil is hiding behind those details, for the Indian strategic community to celebrate. Whatever bedevils Sri Lanka in the process is going to hit India harder than what is visible.
The larger concern for India should not be stand-alone or clubbed Chinese projects in Sri Lanka, or elsewhere in the neighbourhood. It should be more about the reason for such nations to seek out Chinese funding at a high cost and risk for their respective economy and sovereignty—when others have shut their doors, whatever the reason and justification.
Nations around India, truth be told, have become unviable economic entities. Decades ago, Southeast Asian nations envied Sri Lanka’s economic status. Even post-War Japan was not up to it. It’s not so after the two JVP insurgencies and the decades-long ethnic war in Lanka. The politico-bureaucratic leadership since then has blamed its own failures and wanton mismanagement on these two causes, more so the latter.
According to the latest Fitch figures, Sri Lanka’s ‘foreign currency’ debt repayments up to 2026 alone stand at a whopping $26 billion. And China is not the only creditor. The incumbent government even said that Chinese debts accounted only for a tenth of the total debt, accumulated by successive governments over decades.
The reality is that Sri Lanka has only territory to ‘sell’ and sovereignty to pledge. The nation is not alone in it. Common neighbour Maldives professionalised the process decades earlier, when the sleepy fishing nation took to big-ticket international tourism to boost its economy.
Maldives, too, cannot hope to become a manufacturing hub. Then and now, there are only uninhabited islands to offer in return for hard cash, to spend on food and housing, health and education. When a new government found the inherited till empty in the last decade, it quickly extended the existing 40-year lease period by 10 years, in return for an additional $10 million fee across the table.
Sri Lanka and Maldives are not alone. India’s northern neighbours, Bhutan and Nepal, too have counted on what nature has bequeathed on them to make ends meet. They have been harvesting money out of their water resources. India has put in big money to build huge reservoirs and set up massive power-generating units and transmission towers, and pays for the hydroelectricity it thus ‘imports’.
Indian conundrum: All this should not cloud India into thinking that the nation is free of similar traps. No. India may not have a China knocking on its doors. Instead, it chose the US-led West long ago. With the advent of the economic reforms circa 1991, successive governments have been selling the nation’s PSUs, which the post-Independence generation had built brick by brick. In its place, they have not created any other tangible asset, either.
If anything, the Centre even has had a disinvestment ministry. No one is also talking anymore about such PSU sales being a one-off affair, to ward off an imminent crisis. It is unlike the country pledging its ‘gold reserves’ with the Bank of England ahead of the reforms.
Blame it on poor administration and corruption in the past, or on demonetisation, GST and the Covid pandemic now, no one is talking about two things: that India will soon stop this ‘sale of the family silver’ to pay for food—and guns; more importantly, no economist is saying that the nation’s economy is on a quick and steep recovery mode.
What does it all mean for the Indian strategic community? The next time anyone questions Sri Lanka’s economic strategy, they need to have their answers ready to questions that won’t touch upon India’s security concerns. They may be quizzed, instead, about India’s sale of PSUs, the likes of which Sri Lanka does not have.
N Sathiya Moorthy, Distinguished Fellow & Head-Chennai Initiative, Observer Research Foundation