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India-Sri Lanka Relationship Hits Roadblocks. Is China Playing Dirty Games in Indian Ocean?

In this file photo, Chinese President Xi Jinping (L) waves next to Sri Lanka's Prime Minister Mahinda Rajapaksa during an official welcoming ceremony at Bandaranaike International Airport in Katunayake. (Reuters/Dinuka Liyanawatte)

In this file photo, Chinese President Xi Jinping (L) waves next to Sri Lanka's Prime Minister Mahinda Rajapaksa during an official welcoming ceremony at Bandaranaike International Airport in Katunayake. (Reuters/Dinuka Liyanawatte)

Recent developments such as Sri Lanka pulling out of a joint deal with India and Japan to develop the East Container Terminal at the Colombo port and the Central Bank of Sri Lanka returning $400 million currency swap facility, are affecting bilateral engagements.

Two recent developments seem to have affected India’s relationship with Sri Lanka. Last week, Sri Lanka pulled out of a joint partnership agreement with India and Japan to develop the much-hyped East Container Terminal (ECT) at the Colombo port, sending shockwaves both in New Delhi and Tokyo. On the same day, the Central Bank of Sri Lanka (CBSL) returned US$400 million currency swap facility, which it availed in July 2020 to meet its emergency needs during the Covid19 induced lockdown.

The ECT deal has been mired in controversies for over two years. After Gotabaya Rajapaksa became Sri Lanka’s President in November 2019 and his elder brother, the former President Mahinda Rajapaksa led his party to a two-thirds victory in the August 2020 Parliamentary elections, to outmaneuver China, India walked the extra mile to retain its hold and influence over its southern neighbour.

Prime Minister Narendra Modi hosted Gotabaya Rajapaksa in New Delhi. Sri Lanka’s Foreign Affairs Minister Dinesh Gunawardena also travelled to New Delhi to cement the relationship. External Affairs Minister S Jaishankar and National Security Adviser Ajit Doval made a few visits to Colombo to persuade Sri Lanka not to fall into a Chinese trap.

For the record, the Sri Lankan government reiterated that India is its closest neighbour and a family, whereas China is just a friend. Even after the collapse of the ECT deal, PM Mahinda Rajapaksa has maintained the same stand saying Sri Lanka’s relationship with India is still robust.

In an interview to Sri Lanka’s leading English newspaper Daily Mirror, he said: “No, there won’t be any issue. We maintain healthy relations with India in this regard. There are two schools of thought regarding this investment project. Alienation of state assets is not the policy of this government. Quite a number of Buddhist monks oppose it. They have already come out”.

However, India and Japan have firmly told Sri Lanka to honour its commitment regarding their partnership in the ECT project. Sri Lanka is maintaining that the ECT will have no foreign players and it will be developed with their own funds and domestic borrowings.

Sri Lanka has been hit hard by the Covid19 induced lockdown and its economy is in crisis. Local experts feel that it is not in a position to fund the project on its own and the Chinese might enter through backdoor to checkmate their traditional rivals and neighbours, India and Japan.

In the last 15 years, China has invested heavily in Sri Lanka’s infrastructure projects, triggering panic in New Delhi. China has its footprints everywhere. Hambantota port in the deep south to Colombo International Financial City (CIFC) is being built on the land reclaimed from Indian Ocean. The ruling Rajapaksas also share an excellent personal rapport with the Chinese President Xi Jinping.

Sri Lankan media, both Sinhalese and English, have carried several news reports pointing fingers at China, in the last two months. The port workers trade unions went on a strike opposing any foreign partnership concerning the ECT and some see a Chinese hand behind this.

According to a Sri Lankan shipping expert who does not want to be named, China does not want Colombo port to grow because of its investment in the Hambantota port. “China owns Hambantota port. If ECT becomes big with India and Japanese partnership, Hambantota will lose business. That’s why they are playing dirty games in Colombo,” he said.

He also blamed the militant attitude of Sri Lanka’s port trade unions for the current fiasco.

To blunt the “Sri Lanka has been sold out to China” arguments, Gotabaya Rajapaksa has stated that he will revisit even the Hambantota agreement with China, implying both India and China are equal and Sri Lanka’s sovereignty is non-negotiable.

But there are not many takers for this. Some dub it as a gimmick and he is just playing to the gallery.

Shashi Danatunge, former chairman of Ceylon Shipping Corporation (CSC), said that recent developments signal a shift in Sri Lanka’s foreign policy.

Speaking to News18 over phone from Colombo, Danatunge said: “It is in a way anybody can see it that way. The ECT is very important and the most lucrative project for anybody. Naturally, Sri Lanka does not want to hand it over to anyone. But, there may be many other issues involved”.

“South Asia is the most unsettled region in the World since independence from the British over 70 years ago. Maybe, genetically or culturally we are not compatible. Our reluctance to partner shows that. There is also a deep mutual suspicion. Unlike the European nations, we have not come closer in the last 70 years. We have not become close partners. Sadly the region is still under the influence of our colonial past,” Danatunge said.

Sri Lanka, which is mobilising the support of other nations to defend itself before the United Nations concerning its Human Rights issues, is now wooing the Islamic countries in the World. Imran Khan, the Prime Minister of Pakistan, is visiting Sri Lanka soon and he is likely to make some statements in this regard. Sri Lanka and Pakistan share a closer relationship and both have fallen into a Chinese debt trap in the recent years. Backing Sri Lanka on human rights issues would be a tightrope walk for India.

Business aside, Sri Lanka can’t really afford to offend India, because of Tamil issues and geopolitical reasons. Since Sri Lanka has already plunged deeper into a Chinese debt trap, it’s not so easy to wriggle out of the current messy situation.

It’s a catch 22 situation.