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Nirmali Ameresekere pens the benefits of economic integration with India

As India is poised to become the world’s third largest economy by 2030, Sri Lanka’s evolving relationship with its northern neighbour presents considerable potential. And President Anura Kumara Dissanayake’s leadership presents a unique opportunity to bridge political divides and strengthen bilateral relations.

One economist observes that while we stand to gain substantial economic benefits, a stable Sri Lanka aligns with India’s geopolitical goals as instability could open the door to influence from regional rivals.

The economic partnership between India and Sri Lanka is shaped by a shared culture, geography and history. It could be likened to that of a symbiotic relationship where both nations rely on each other to advance their interests.

As the economist highlights, deeper economic integration is essential for mutual growth and fostering regional cooperation within frameworks such as SAARC and the Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC).

While some segments of society express concern over Indian influence and potential dominance, these fears can be addressed through transparent communication about the tangible benefits of integration – including increased trade, investment and infrastructure development.

India is currently Sri Lanka’s largest trading partner, top investor and leading source of tourists. The relationship reached the pinnacle in 2022 when India became the first country to offer vital support during the country’s worst economic crisis. Additionally, India played a key role as co-chair in the restructuring of Sri Lanka’s external debt.

For India, Sri Lanka holds strategic importance within India’s Neighbourhood First policy and the broader Mutual and Holistic Advancement for Security and Growth Across Region (MAHASAGAR) vision for regional diplomacy.

This was reinforced by Indian Prime Minister Narendra Modi’s April visit, which came at a pivotal moment amid escalating regional tensions and a global trade war. During the visit, seven MoUs were exchanged covering power, energy, health, IT and defence cooperation.

Notably, the agreement to interconnect electricity grids is of particular significance. India offers some of the most cost-effective electricity in the world. This initiative could help Sri Lanka secure affordable energy while reducing its vulnerability to glo­bal price fluctuations, which is often a source of economic instability.

Moreover, Sri Lanka is not a primary focus for large economies such as the US and China. Recent developments including tariffs imposed by President Donald Trump, and China’s alleged export of contaminated fertiliser and refusal to refund payments – which contributed to the crisis – suggest that Sri Lanka should bolster ties with its neighbour.

In this context, India emerges as the natural partner for attracting investment in critical sectors. As Sri Lanka prepares to repay its debts in 2028, the country must increase exports and attract greater foreign direct investments (FDI) – areas where India can play a crucial role.

India has already invested in the Port of Colombo and expressed an interest in Trincomalee – both of which are strategically and economically lucrative to the island’s regional and global aspirations. For Sri Lanka, these developments support the ambitions of becoming a regional logistics hub while boosting revenue amid IMF led fiscal reforms.

However, this partnership is not without its challenges. As the economist points out, the eight million piece quota limit of apparel exports annually and restrictions on pepper hamper Sri Lanka’s largest industries from fully capitalising on India’s growing demand.

These drawbacks emphasise the necessity of fostering closer economic integration with India. By prioritising transparent partnerships and leveraging India’s rise on the world stage, Sri Lanka can not only secure its own recovery but also position itself as a key player in South Asia’s future.