19 December 2024 : Indian Express Editorial Analysis

1. From aid to trade   

(Source: Indian Express; Section: The Ideas Page; Page: 13)

Topic: GS2 – International Relations

Context

The article highlights Sri Lanka’s President Anura Kumara Dissanayake’s state visit to India, emphasizing renewed bilateral cooperation to strengthen economic, trade, and regional partnerships in South Asia.

 Sri Lanka’s President Visits India: Strengthening Bilateral Ties

• Sri Lanka’s new President, Anura Kumara Dissanayake, chose India as the destination for his first state visit, signaling the importance of Indo-Sri Lankan ties.
• Warmly received by President Droupadi Murmu and Prime Minister Narendra Modi, the visit marked a significant step in reshaping the bilateral relationship.
• Key announcements included India’s pledge to supply LNG gas, enhance trade settlements, promote education and technology exchanges, and encourage Indian FDI in Sri Lanka.

A Shift in Sri Lanka’s Domestic and International Politics

• President Dissanayake’s leadership represents a transformative phase for Sri Lanka.
• Winning the presidency in September and achieving a parliamentary two-thirds majority in November, his “clean Sri Lanka” manifesto appealed to a broad spectrum of citizens across ethnic and economic lines.
• These victories highlight public trust in his commitment to anti-corruption, modernizing agriculture, and improving governance.
• His policies, coupled with India’s ongoing support, reflect a shift from security-focused ties to a broader economic partnership in South Asia.

Bilateral Agreements: A Boost for Economic Recovery

• Sri Lanka’s economic recovery remains a priority under President Dissanayake.
• Despite a decline in GDP per capita over the past five years, the country has embraced an IMF program with a focus on social spending to alleviate poverty.
• India’s assistance, such as digitalizing Sri Lankan public services, aligns with this vision, helping reduce corruption and ensure targeted social protection.
• Additionally, the bilateral agreements focus on shifting the relationship from aid dependency to trade collaboration, fostering sustainable economic growth.

Opportunities for Enhanced Cooperation

Expanding Business-to-Business (B2B) Ties

• Strengthening business ties beyond Tamil Nadu to include other southern Indian states offers immense potential for economic collaboration.
• Leveraging proximity, sectors like food processing, textiles, auto parts, and IT services can benefit from increased trade fairs, visits, and collaborations between smaller business chambers.
• Such initiatives could stimulate mutual growth, given the MSME-driven economies of both nations.

Regional Production-Linked Incentive (PLI) Schemes

• A regional PLI scheme involving Sri Lanka could integrate Indian businesses into the country’s manufacturing sector, particularly in solar panel production.
• This initiative aligns with India’s China+1 strategy, fostering regional supply chains and reducing investment risks while promoting renewable energy and green technology collaborations.

Advancing the India-Sri Lanka Free Trade Agreement (FTA)

• Reviving FTA negotiations offers an opportunity to expand trade in goods, services, and investments.
• Asymmetrical treatment for Sri Lanka, coupled with aid for trade initiatives, could address domestic concerns while promoting bilateral growth.
• A phased approach could see an investment agreement by 2025 and a comprehensive FTA by 2026, fostering deeper economic ties.

Connectivity and Infrastructure Development

• Improving connectivity is pivotal for trade and tourism. Enhanced air links, modernized ports, and revived ferry services between India and Sri Lanka already show promising results.
• Future projects, including an undersea oil pipeline and electricity transmission line, could further strengthen Sri Lanka’s energy security.
• Digital infrastructure upgrades, inspired by India’s success, are also on the agenda.
• However, proposals like a land bridge face skepticism, highlighting the need for realistic and mutually beneficial projects.

Sri Lanka’s Stabilizing Economy and Regional Context

• Sri Lanka’s economic stability is crucial for both nations. Tourism recovery, bolstered by Indian and IMF support, has contributed to foreign exchange earnings.
• However, looming external debt repayments from 2028 underscore the need for sustained trade-led growth.
• In this context, India’s partnership with the IMF and World Bank could be vital.
• Regionally, India’s relationships with other South Asian countries face challenges, making cooperation with Sri Lanka a strategic necessity.
• Enhanced economic ties could serve as a model for regional partnerships, supporting India’s Neighbourhood First Policy and reinforcing its status as a regional power.

Conclusion: A New Era for Indo-Sri Lankan Relations

• President Dissanayake’s visit to India lays the foundation for a reinvigorated partnership.
• With a focus on trade, technology, and connectivity, the bilateral relationship is set to transcend traditional security concerns, fostering economic growth and regional stability.
• Collaborative initiatives, from B2B ties to infrastructure projects, promise mutual benefits, positioning India and Sri Lanka as key partners in South Asia’s progress.

What are India’s concerns with Sri-Lanka?

Rising Chinese Footprint- China is spreading its tentacles in Sri Lanka by bagging the project to develop an airport in capital Colombo. India remains concerned due to lack of a level playing field for economic projects in Sri Lanka, with the Sri Lankan government at times openly siding with the Chinese. India’s security concerns- The regular movement of Chinese naval vessels, particularly submarines and the so-called research ships, is a matter of grave security concern to India. Safeguarding India’s strategic interests- The environmental groups, which are an important part of the NPP, have demanded the scrapping of the Adani group backed renewable energy project. India is concerned about protecting its strategic interest in the island nation, especially after giving millions of rupees in aid and loan to Sri Lanka. Exclusion of minority groups- India is concerned regarding the exclusion of Tamils and Muslims from the governance structure of the newly formed government. Fishing disputes- Despite reaching an agreement 47 years ago through the 1974 Indo-Lanka Maritime Boundary Agreement, India and Sri Lanka have not yet resolved their maritime disputes, like Katchatheevu Island dispute. Indian fishermen continue to cross the maritime border into Sri Lanka in the Palk Strait, resulting in encounters with the Sri Lankan Navy, leading to tensions and assaults. Tamil issue- There is concern regarding Sri Lanka’s lack of measurable progress in fulfilling its commitment to finding a political solution to the Tamil issue. The Tamil community in Sri Lanka has been demanding the implementation of the 13th Amendment that provides for devolution of power to it.

PYQ: In respect of India — Sri Lanka relations, discuss how domestic factors influence foreign policy.  (200 words/10m) (UPSC CSE (M) GS-2 2013)

Practice Question: Discuss the significance of Sri Lanka’s recent political and economic shifts under President Anura Kumara Dissanayake and its implications for India-Sri Lanka bilateral relations, with a focus on regional stability and economic cooperation in South Asia. (250 words/15 m)

2. An economic tightrope 

(Source: Indian Express; Section: The Ideas Page; Page: 13)

Topic: GS3 – Indian Economy

Context

The article highlights India’s pivotal economic prospects and challenges in 2025, focusing on growth dynamics, policy reforms, and global uncertainties.

 India in 2025: A Year of Economic Milestones and Challenges

• The year 2025 is poised to be transformative for the Indian economy, with the possibility of India surpassing Japan to become the fourth-largest global economy.
• This milestone would underscore India’s growing economic significance, providing a larger market and investment opportunities, increasing government resources, and enhancing its geopolitical stature.
• However, challenges loom, including slowing growth, fiscal constraints, and global economic volatility.

Slowing Growth Momentum: A Cause for Concern

• India’s nominal GDP growth may remain below 10% for three consecutive years, signaling a departure from its decadal average of 11%.
• This slowdown could adversely impact household incomes, employment, and the government’s debt-deficit dynamics.
• If this becomes a sustained trend, it could weaken India’s trajectory toward becoming a developed nation, highlighting the need for structural reforms to reinvigorate growth.

Evaluating the Production-Linked Incentive (PLI) Scheme

• The PLI scheme, a centerpiece of India’s industrial policy, has achieved mixed results.
• Despite allocations of ₹32,620 crore over four years, disbursements remain concentrated in a few sectors like mobile phones and semiconductors, while others receive negligible support.
• This narrow focus raises concerns about whether the scheme is effectively boosting investments and creating jobs across industries.
• A broader approach involving a larger set of companies is necessary to drive the investment cycle and diversify industrial growth.

The Role of Private Sector Investments

• Government capital expenditure has played a significant role in supporting the economy, but its sustainability is in question, with the capex-to-GDP ratio likely having peaked.
• A contractionary fiscal policy, driven by fiscal deficit reduction targets, puts additional pressure on private investments to take the lead.
• However, past strategies to encourage private investment have yielded limited success, and relying on hope for private sector participation is insufficient.

Trade Policy: Balancing Protectionism and Global Integration

• India’s approach to trade agreements remains inconsistent, with a mix of protectionist policies and selective engagement in free trade agreements (FTAs).
• While FTAs with the UK and EU hold potential, delays and hesitancy have hindered progress.
• Other nations have capitalized on the China-plus-one strategy more effectively.
• For sustained growth, India must strike a balance between protecting domestic industries and integrating with global trade networks.

Fiscal and Monetary Challenges

• India faces significant fiscal pressures with the 16th Finance Commission’s recommendations and the impending Eighth Pay Commission’s salary revisions.
• These will strain both central and state finances, complicating fiscal consolidation efforts.
• Simultaneously, the Reserve Bank of India (RBI) is under pressure to manage inflation, interest rates, and currency stability amidst global volatility. Balancing fiscal discipline with growth-supportive policies will be crucial.

Global and Domestic Uncertainties

• Uncertainty in global trade and financial markets, exacerbated by potential US protectionist policies and rising interest rates, adds complexity to India’s economic landscape.
• Domestically, a less hectic election calendar in 2025 may provide the government with an opportunity to focus on long-term policies rather than short-term optics.

Conclusion: The Path Ahead

• While 2025 offers India a chance to solidify its economic standing, achieving sustained growth requires addressing structural bottlenecks, enhancing private investments, adopting a consistent trade policy, and managing fiscal challenges.
• The government must leverage this pivotal year to implement reforms that ensure inclusive and resilient economic progress amidst a challenging global environment.

Practice Question: Critically analyze the key economic opportunities and challenges India is expected to face in 2025, with a focus on growth trends, fiscal and monetary policies, industrial strategies, and global trade dynamics. (250 words/15 m)