Sri Lankan Debt Crisis and Indian Exports - R R Padmanabhan, Director - Exim Academy

 Sri Lankan Debt Crisis and Indian Exports

Back in my college days, in Economics class, my professor used to link the rise in price of vegetable in chennai to war in Vietnam.  Now, fast forward to 21s century, world shrunk to palms.  Sri Lankan forex crisis is beginning to hurt Indian exporters.  That Sri Lanka borrowed left, right and centre much beyond their servicing capability is a matter well known to all. Of course, the road from airport to city built with Chinese funds and assistance is gleaming and so other infrastructure projects like port expansion and not to speak of Hambantota.  Infrastructure development through debt financing is a gamble.  It is well known to everyone.  Any accountant would tell you that infrastructure projects have long gestation period and therefore the funding must be either on grant or soft terms. For example, in India the Metro rail have been funded by the Government of Japan on 0% interest payable over a period of 50 years

 

We cannot leave the issue as ‘their problem’.  Sri Lanka is a neighbor and therefore cannot be ignored.  Most of the essentials reach Srilanka from India. This is the quandary. Sri Lanka does not possess the required forex to pay for their import bills. While the Srilankans importers do have money in their own currency and they want to settle their bills, their banks do not permit them to remit the dollars because no dollars are in their kitty. 

 

The current Forex crisis is not only because of loans from china but repayment of International Sovereign Bonds issued earlier.  Sri Lanka does not have the luxury of obtaining soft loans as its economy improved.  Now who would bail out Sri Lanka?  Will India do it? Or once again Sri Lanka will go to China and cry over its shoulders?  We have to wait and see.

 

Till such time, Indian exporters will have to keep their crossed! May Lord Buddha smile on Sri Lanka!




R R Padmanabhan,

Director - Exim Academy

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