President Disanayaka’s visit to India: Opportunities, challenges, and the path ahead

In December 2024, Sri Lanka's President, Anura Kumara Disanayaka, embarked on a state visit to India, underscoring the deep historical, cultural, and strategic ties that bind the two neighboring nations. The visit, which took place from December 15 to 17, brought to the forefront both promising opportunities for Sri Lanka’s economic revival and complex challenges related to its sovereignty. As Sri Lanka emerged from an unprecedented economic crisis, the visit provided a platform for strengthening bilateral cooperation in key areas such as trade, development, energy, and security. Yet, it also raised critical questions about the potential risks of over-reliance on India, particularly concerning labour markets, energy independence, and economic autonomy. 

The discussions during this visit were not just about fostering closer ties, but also about navigating the fine line between partnership and preserving national independence in a rapidly changing geopolitical landscape.

Opportunities for economic recovery and stronger bilateral ties

One of the major highlights of President Disanayaka’s visit was the focus on fostering economic recovery through strengthened cooperation between India and Sri Lanka. In their joint statement, both leaders reaffirmed their commitment to enhancing the partnership, driven by the historical, cultural, and geographical ties between the nations. Prime Minister Narendra Modi reiterated India’s full support to Sri Lanka’s economic recovery, recognizing the pivotal role that the island nation plays in India's "Neighbourhood First" policy.

India’s continued financial assistance has been a crucial lifeline for Sri Lanka, especially following the unprecedented economic crisis of 2022. President Disanayaka expressed deep appreciation for India’s support, including emergency financial aid and forex support worth USD 4 billion. This assistance, along with India’s role in Sri Lanka’s debt restructuring process, has provided vital relief to the country, reducing its debt burden during a critical period.

Additionally, both leaders emphasized the need to explore new areas for development cooperation. This includes advancing projects such as the Indian housing project, renewable energy initiatives, and community development programs. India’s role in capacity building and training of Sri Lankan officials in various fields, including civil services, defence, and legal domains, was also underscored.

The trade and investment front also saw significant developments, with a mutual recognition of the untapped potential in the India-Sri Lanka Free Trade Agreement (ISFTA). The two leaders discussed ways to enhance trade ties, including strengthening INR-LKR trade settlements, encouraging investments in key sectors, and accelerating the implementation of the Economic and Technological Cooperation Agreement (ETCA).

Challenges: Implications for sovereignty and economic independence

While the visit fostered optimism regarding the future of India-Sri Lanka relations, it also raised concerns about Sri Lanka’s sovereignty and economic independence. One of the key areas of apprehension revolves around the ETCA, which allows the free movement of professionals between the two nations. This provision poses a potential risk to Sri Lanka’s labour market, where an influx of Indian professionals could challenge employment opportunities for locals and strain resources in certain sectors.

The agreement primarily aims to facilitate closer economic ties, with a focus on trade, investment, and technological collaboration. The last round of talks between the two parties was held in January 2024, “there is willingness from both India and Sri Lanka to get the agreement done.

During the meeting with Narendra Modi and President Anura Kumara Dissanayake, the two leaders also agreed to continue discussions on the ETCA and enhance INR-LKR trade settlements between the two countries.  

The ETCA which is built upon a previous free trade agreement (FTA) that was implemented in 2000 will further strengthen economic ties between India and Sri Lanka. The two countries relaunched talks on ETCA in November 2023 after a five-year gap, demonstrating their commitment to deepening their economic cooperation.

ECTA received wide criticism from the general public when it was talked about in the former Yahapalana Government period between 2015 and 2019 as it allegedly allowed Indian labourers to work in Sri Lanka.

Risks to Sri Lanka's labour market

While this provision is seen as a potential boost for economic integration, it also presents several risks to Sri Lanka’s labour market. Sri Lanka, with its relatively smaller economy, faces the challenge of competing with a much larger neighbor, India, in certain professional sectors. The influx of skilled Indian workers could lead to increased competition for jobs, particularly in industries where Sri Lanka already faces a shortage of skilled labour.

Indian professionals, with their often advanced skills and experience, could easily fill roles in Sri Lanka’s technology, engineering, and healthcare sectors, potentially displacing local talent. This could lead to wage suppression in some industries, where Indian professionals may be willing to accept lower salaries due to the lower cost of living in Sri Lanka. Such developments could negatively affect local workers' employment opportunities, income levels, and career progression, thereby creating a labour market imbalance.

Additionally, the agreement could prompt an outflow of Sri Lankan professionals to India, attracted by larger job markets and potentially higher salaries, further exacerbating the strain on Sri Lanka’s own labour force. While both countries could benefit from the mutual exchange of expertise, Sri Lanka needs to carefully manage this provision to ensure that its workforce is not overwhelmed or sidelined by the inflow of foreign professionals.

In the wake of the discussions, Foreign Minister Vijitha Herath said on Friday (20) the government the government did not sign the ETCA as claimed by some opposition politicians and that the government only agreed to continue discussions on the matter further.

"No final decision was made or set dates for discussions on ETCA. We will not sign any agreement detrimental to our economy," he said.

Minister Herath said Sri Lanka signed only two MoUs with India during the recent visit, which included an MoU for training and capacity-building of 1,500 civil servants of Sri Lanka and a Protocol for amending the Agreement of Avoidance of Double Taxation.

He also refuted claims that Sri Lanka agreed to implement a multi-product pipeline from India to Sri Lanka and added that Sri Lanka only agreed to continue the discussion initiated by the previous government on the matter.

Energy dependence and sovereignty in South Asia

Energy cooperation has become a central feature of Sri Lanka's bilateral ties with India, as evidenced by the joint statement between President Dissanayake and Prime Minister Modi. This growing reliance on Indian energy resources and projects highlights a broader trend in South Asia, where countries like Bangladesh and Nepal have also granted energy agreements to Indian conglomerates, contributing to a diminishing level of energy sovereignty.

The joint statement between the two leaders in December 2024 emphasizes Sri Lanka’s increasing energy dependence on India through multiple key projects.

The solar power project in Sampur is one of the landmark initiatives aimed at addressing Sri Lanka’s energy needs. The project is designed to increase Sri Lanka's renewable energy capacity, though its dependence on India for technology and expertise underscores the broader energy reliance on India’s resources and capacity.

One of the most significant aspects of the Sri Lanka-India energy relationship is the proposal to supply Liquefied Natural Gas (LNG) from India to Sri Lanka. The growing demand for cleaner energy sources in Sri Lanka has prompted the government to consider tapping into India’s vast LNG infrastructure. While this would support Sri Lanka’s energy security, it would also create long-term dependence on India for a critical resource, leaving Sri Lanka vulnerable to price fluctuations, geopolitical tensions, or disruptions in India’s energy production.

The proposal for a high-capacity power grid interconnection between Sri Lanka and India is another major step towards deepening energy dependence. By interlinking the two countries' electrical grids, Sri Lanka would be able to access more reliable energy resources from India, particularly in times of demand spikes or shortages. However, such interconnection agreements carry risks of vulnerability in case of grid failures or political instability affecting the grid operations in India.

The leaders also discussed the multi-product pipeline project, which would provide Sri Lanka with access to affordable and reliable energy from India. This project would involve the transportation of petroleum products, natural gas, and possibly other resources from India to Sri Lanka. The pipeline agreement would further entrench Sri Lanka’s energy dependence on India, limiting its flexibility in sourcing energy from other suppliers, thus compromising its energy sovereignty.

The potential joint development of offshore wind power in the Palk Straits, though beneficial in terms of green energy production, also involves substantial cooperation with India. Sri Lanka’s reliance on Indian expertise and investment in this sector again illustrates a trend where energy independence is being traded for immediate energy solutions and investment.

Another significant aspect of energy cooperation is the development of Trincomalee as a regional energy hub, involving the expansion of its tank farms for storing petroleum and other energy products. This project, if successful, could boost Sri Lanka’s energy security. However, Sri Lanka’s control over the Trincomalee infrastructure will likely remain limited due to the significant Indian investment and strategic interests in the region.

Sri Lanka's growing energy dependence on India mirrors trends in other South Asian countries, such as Bangladesh and Nepal, which have entered into similar agreements with Indian energy giants. These agreements typically involve the supply of electricity, gas, and other energy resources from Indian companies, often in exchange for infrastructure development and energy projects in the partner countries.

For example, Bangladesh has granted Indian conglomerates access to its energy market through joint ventures and agreements involving natural gas exploration and power supply. Similarly, Nepal has entered into power purchase agreements with India, linking its electricity grid to India’s vast electrical grid. While these projects help address immediate energy shortages, they come at the cost of national control over energy resources, raising concerns about energy sovereignty.

This increasing regional dependence on India’s energy sector could have long-term geopolitical implications for these countries. As Indian energy conglomerates expand their influence across South Asia, they gain significant leverage over local governments, potentially skewing policies and energy prices in favor of Indian corporate interests. This dynamic reduces the negotiating power of countries like Sri Lanka, Bangladesh, and Nepal, which may struggle to diversify their energy sources without facing resistance from powerful Indian entities.

While energy dependence on India offers immediate solutions to Sri Lanka’s energy crisis, it also raises important questions about the country's future energy security. Sri Lanka's energy sovereignty could be undermined as it becomes increasingly tied to India's energy policies and market conditions. For instance, fluctuations in India’s domestic energy supply or shifts in Indian foreign policy could directly impact Sri Lanka's energy resources, making it more vulnerable to external pressures.

President Dissanayake’s comments about the Adani Group’s role in Sri Lanka further underscore this issue. While the government seeks to attract investment, particularly from large Indian conglomerates, there is a delicate balance between fostering economic growth and maintaining national autonomy. The Adani Group's involvement in Sri Lanka’s energy sector, particularly in potential infrastructure projects, reflects how Indian corporate interests are increasingly shaping Sri Lanka's energy landscape. The reliance on such conglomerates could undermine Sri Lanka’s ability to negotiate independently in the future and shift the balance of power towards India.

Additionally, environmental concerns, as raised by President Dissanayake, further complicate Sri Lanka's energy strategy. As energy projects expand, Sri Lanka must carefully consider sustainable practices and environmental impacts, ensuring that development does not come at the expense of its ecological integrity. The commitment to environmental protection in the offshore wind projects and other initiatives is crucial, but it must not distract from the broader challenge of energy sovereignty.

Despite these challenges, the visit underscored the importance of finding a balance between the benefits and risks of closer ties with India. Sri Lanka, with its ongoing economic recovery efforts, is undoubtedly in need of financial aid, infrastructural development, and regional security cooperation. India’s support, especially in the form of development assistance and debt restructuring, has been invaluable in stabilizing Sri Lanka’s economy.

However, as Sri Lanka moves forward with deepening its ties with India, it must carefully navigate the delicate balance between leveraging India’s assistance for economic recovery and maintaining its sovereignty in key areas such as labour, energy, and national security. It will be crucial for Sri Lanka to ensure that its agreements with India, including the ETCA and energy deals, do not undermine its independence in these critical sectors.

The leaders of both nations expressed confidence that by enhancing political, economic, and cultural exchanges, Sri Lanka and India can build a more robust, mutually beneficial relationship. However, the task ahead for Sri Lanka will be to maximize the benefits from these partnerships while minimizing the risks associated with over-reliance on its larger neighbor.