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


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

The fallout from the crisis has also reached Indian shores. The ITC said its first foreign business in the hotel space was hit. Earlier, the $300 million project in Colombo saw construction impacted due to terrorist incidents in 2019 and then the pandemic.



In April, a financial daily reported that auto companies like Tata Motors, Mahindra & Mahindra, Ashok Leyland and TVS Motors had halted vehicle kit exports to Sri Lanka and halted production at their Sri Lankan assembly units. due to its precarious foreign exchange reserves and fuel shortages.

According to an India brief from 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 of India’s total exports fell from 2.16% in FY15 to just 1.3% in the first 10 months of FY22.

India’s exports to Sri Lanka are now a far cry from the $6.7 billion seen in 2014-15. Through January 2022, it stood at $4.49 billion for FY22.

But there is also a silver lining. Since Sri Lanka is the world’s largest supplier of Orthodox tea, calls for Indian planters and exporters from overseas buyers of the goods have been pouring in. Large Sri Lankan importers from Iran, Turkey, Iraq and Russia would visit Kolkata and Assam tea plantations. As a result, at the recent Kolkata auctions, the average price of Orthodox leaves increased by 41% compared to the corresponding sales last year.

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

Sri Lanka has been a strategically important partner for India. Even though some of our businesses are affected and some are trying to fill the vacuum created by the Sri Lankan crisis, India’s help in this time of need will only strengthen ties with the island nation which has long leaned towards the Chinese camp.

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