With the prevalent situation, India’s exporters are rethinking plans to send shipments to Sri Lanka as state-run companies have run out of money and private buyers have cancelled orders. Without assurances from the government, exports to the island nation are set to shrink from April, analysts say.
India’s southern neighbour, Sri Lanka, is struggling to stay afloat amid the deepening economic crisis with the island nation on the brink of bankruptcy, with nearly USD 7 billion of its total USD 25 billion in foreign debt due for repayment this year.
A severe shortage of foreign exchange means the country lacks the money to buy imported goods. People have endured months of shortages of essentials like food, cooking gas, fuel, and medicine, and lining up for hours to buy the very limited stocks available.
ndia’s exporters are rethinking plans to send shipments to Sri Lanka as state-run companies have run out of money and private buyers have cancelled orders. Without assurances from the government, exports to the island nation are set to shrink from April, analysts say.
During such situations, shipments with high freight-on-board value are the first to be hit. These are mostly products that get imported into the country.
As of now, import of vehicles, engineering goods such as iron and steel, heavy machinery, and electronics have begun to reduce as exporters are looking to renegotiate contracts or hold off on shipments coming to Sri Lanka.
Recently, the Export Credit Guarantee Corporation, which provides credit risk insurance and related services for exports, put Sri Lanka in the Restricted Cover Category-I. This has further complicated and made exporters wary of shipping goods into Sri Lanka.
SRI LANKAN IMPORTS TAKING HIT:
India is one of the biggest business partners for Sri Lanka, and it also carries out some very significant pieces of business with the island nation. The bilateral trade between India with Sri Lanka stood at $5.9 billion during 2021-22, rising from $4.1 billion in 2020-21.
Sri Lanka was slowly moving closer to India both diplomatically and with respect to trade in recent years even before the Covid-19 pandemic with the year 2018-19 seeing the bilateral trade reaching $6.1 billion.
India is the major partner in the bilateral trade with most trade happening from India to Sri Lanka. Indian exports amount to almost 87 per cent of the overall trade between the nations. Petrol and diesel, along with processed petroleum make up the majority chunk of exports aside from iron, steel, apparel, rice, wheat, cotton, pharmaceuticals, and boats.
Recently, India’s line of credit amounted to $1 billion mainly for the import of food, medicine, and essential items and $500 million specifically for petrol and gas. It is not sure how long India can continue to support Sri Lanka in a similar manner.
Indian companies have also made strong investments in Sri Lanka in the areas of petrol, retail, IT, banking and financial services, real estate, telecom, metal, tyre manufacturing, cement etc. Tata, Bharti Airtel, Indian Oil, Mahindra & Mahindra, and banks like SBI are some of those who directly operate in Sri Lanka.
