How the economic crisis in Sri Lanka is affecting Indian businesses?

Sri Lanka is in a crisis. Covid-19 has sent the economy into a tailspin, and it is in free fall now. Its Prime Minister Ranil Wickremesinghe recently said that the country’s economy has “collapsed”.

The spillover of the crisis has reached Indian shores too. ITC has said that its first foreign venture in the hotel space has been hit. Earlier, the 300-million-dollar project in Colombo saw construction being impacted due to the 2019 terror incidents and then the pandemic.

In April, a financial daily had reported that automotive firms like Tata Motors, Mahindra & Mahindra, Ashok Leyland, and TVS Motors had stopped exports of vehicle kits to Sri Lanka and halted production at their Sri Lankan assembly units due to its precarious forex reserves and fuel shortages.  

According to an India Briefing note by Dezan Shira & Associates, instability in Sri Lanka could affect Indian Oil, Airtel, Taj Hotels, Dabur, Ashok Leyland, Tata Communications, Asian Paints, and State Bank of India.

Meanwhile, Sri Lanka’s share in India’s total exports has declined from 2.16 per cent in FY15 to just 1.3 per cent in the first 10 months of FY22.

India’s export to Sri Lanka is now nowhere near the 6.7 billion dollars seen in 2014-15. Till January 2022, it stood at 4.49 billion dollars in FY22.  

But there is a silver lining too. Since Sri Lanka has been the world’s largest supplier of orthodox tea, calls to Indian planters and exporters from foreign buyers of the commodity are pouring in. Big Sri Lankan importers from Iran, Turkey, Iraq, and Russia are reportedly visiting Kolkata and tea plantations in Assam. As a result, at recent Kolkata auctions, the average price for orthodox leaf saw an increase of up to 41 per cent compared to corresponding sales last year.

And, the fuel shortage in Lanka is crippling its apparel sector too. According to the US International Trade Administration, the apparel export industry accounts for about 44% of the country’s total exports. Many apparel orders from the UK, EU, and Latin American countries are now being diverted to India. Several orders have been given to companies in Tirupur, the hub of the textile industry in Tamil Nadu.

Sri Lanka has been a strategically important partner for India. Even as some of our businesses are hit, and some try to fill the void created by the Sri Lankan crisis, India’s assistance in this time of need will only lead to better ties with the island nation that has long been leaning towards the Chinese camp.