Sri Lanka’s economic crisis hits trade ties with India | Daily News

Sri Lanka’s economic crisis hits trade ties with India

As Sri Lanka’s political and economic crisis continues to spiral downward, trade with neighboring India is grinding to an almost halt.

Many Indian exporters are keeping trade suspended over fears that payment from Sri Lankan partners will not arrive as access to capital and loans dries up. India is Sri Lanka’s third-largest trade partner, and one of the largest contributors to foreign direct investment (FDI).

“We are nervous about taking fresh orders from Sri Lankan buyers due to mounting default risks. As such, order flows from Colombo have for a good part also decreased,” a top sugar exporter from Mumbai told DW on condition of anonymity.

Of the 40-50,000 tons of sugar that Sri Lanka consumes every month, 90% is sourced from India. Other major Indian exports to Sri Lanka include engineering goods, chemicals, iron and steel, agricultural commodities, fuel, pharmaceuticals, milk powder, onions and grapes. During the 2021-22 fiscal year, India exported nearly $5.8 billion (€5.71 billion) worth of goods to Sri Lanka. This year, that number is projected to drop.

“Our exports and imports have come to a complete standstill. Exporters are very cautious because of the political crisis and payment issues,” said Federation of Indian Export Organisations vice chairman Khalid Khan in India’s Economic Times newspaper.

India also relies considerably on the Port of Colombo for global trade, given the port’s function as a hub for transferring shipments. India-linked cargo accounts for 70% of the port’s total transshipment volume.

Nearly 60% of India’s total transshipment cargo and 30% of container traffic is handled by the port. However, Sri Lanka’s crisis is affecting port operations. In June, thousands of containers sent from India to Sri Lanka were lying uncleared at the port, as the ongoing unrest has slowed the transfer of containers between terminals. This has included both transshipment cargo and goods for the Sri Lankan market.

Mangala Boyagoda, a Sri Lankan Fund Manager with expertise in banking and treasury management, told DW he is optimistic that the new Sri Lankan government will help grow business confidence.

“Yes, these are tough times … but exports and businesses will begin to pick up. Give it a few months,” he said.

“Banks are gradually settling overdue credit debts and the government working out an IMF package is also important, as it will help shore up foreign reserves,” he added. (



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