Modi’s Lanka Play: How India Is Helping Its Neighbour Rebuild
The prime minister’s visit offers an opportunity to deepen this multifaceted relationship, drive forward key connectivity and energy projects, and hopefully address lingering issues like the fishermen's conflict
Sri Lanka stared into the abyss in 2022. An economic crisis, born from mismanagement and external shocks, brought the island nation to its knees, culminating in a sovereign default that sent shockwaves through the region. Amidst this turmoil, as reserves dwindled and essentials vanished, one neighbour stepped decisively into the breach: India.
Prime Minister Narendra Modi is visiting Sri Lanka from April 4-6. The trip represents a critical juncture in India’s sustained, complex engagement—a strategic “Lanka Play" aimed at stabilising its neighbour while securing its interests in an increasingly volatile Indian Ocean region.
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India Steps Up
When Sri Lanka faced its darkest economic hour, the response from New Delhi was swift and substantial. Unlike the rest of the International support, India did not just offer a token of assistance, it was a lifeline. India extended close to $4 billion in crucial support through multiple channels, including currency swaps via the Reserve Bank of India (RBI), deferrals of trade liabilities under the Asian Clearing Union (ACU), and vital credit lines for importing fuel, food, and medicines facilitated by the EXIM Bank of India and the State Bank of India.
This emergency financing, disbursed rapidly during the critical January-April 2022 period, covered over 80 per cent of Sri Lanka’s merchandise imports from India that year, effectively preventing a total collapse and enabling the country to meet immediate needs and avoid defaulting on multilateral creditors—a move that would have barred access to crucial institutional funding.
Foreign Secretary Vikram Misri rightly emphasised a week ago that this assistance flowed from India’s “Neighborhood First" policy, framing Sri Lanka as an integral partner. India acted as the quintessential first responder, providing nearly $4.5 billion in total assistance during 2022-23, dwarfing initial contributions from other international actors and demonstrating a capacity and willingness to shoulder regional burdens.
This intervention provided Colombo with essential breathing room, stabilised foreign reserves, and allowed for the continued import of essentials. It was done when other financing avenues had dried up. It was a direct, impactful intervention when Sri Lanka needed it most.
Debt Restructuring & Strategic Investments
However, India’s role was not at an end at this point. It transcended emergency aid, moving into the complex arena of debt restructuring and strategic investment, areas deeply intertwined with geopolitical calculus. Following Sri Lanka’s default, navigating the debt maze became paramount. India, despite holding a relatively minor portion (around 4 per cent) of the debt undergoing restructuring compared to China’s significant share (around 27 per cent, including policy bank loans), played an outsized diplomatic role.
New Delhi was the first bilateral creditor to provide the financing assurances required for Sri Lanka’s IMF programme approval in March 2023. This promptness was in contrast to the delay from Beijing, positioning India as a proactive and reliable partner in Colombo’s recovery efforts. Furthermore, India co-chairs the Official Creditor Committee (OCC) alongside Japan and France, a key platform coordinating bilateral debt negotiations, underlining its diplomatic sway.
This leadership role complements a growing footprint of Indian investments in Sri Lanka’s strategic sectors. The Sampur solar power project (a joint venture involving India’s NTPC), expansion plans for the Kankesanthurai port, and potential energy connectivity projects like power grid interconnections and an oil pipeline from Nagapattinam to Trincomalee, underscore India’s intent to deepen economic integration.
These investments are not accidental; they align with India’s strategic objectives of securing its economic interests (particularly port access for transhipment), enhancing regional connectivity, and subtly countering China’s longstanding influence in the island’s infrastructure landscape. The goodwill generated by the 2022 assistance has undoubtedly facilitated progress on these initiatives, some of which had previously stalled.
Cementing Ties, Tackling Irritants
Prime Minister Modi’s fourth visit to Sri Lanka during his tenure, and significantly the first state visit hosted by President Anura Kumara Dissanayake, carries weight. President Dissanayake chose India for his first overseas visit in December 2024, signalling Colombo’s current orientation. Modi’s return trip is poised to solidify this relationship further.
The agenda is packed: the inauguration of India-assisted projects like the Sampur Solar Project, the exchange of MoUs covering energy connectivity, digitisation, health, and defence cooperation, and official discussions aimed at exploring new areas of partnership as Sri Lanka tentatively returns to a growth path. The visit to the historic city of Anuradhapura and the respects paid at the Jaya Sri Maha Bodhi temple underscore the deep civilisational links that form the bedrock of the relationship.
However, the visit also provides a platform to address persistent irritants. The issue of Indian fishermen operating near Katchatheevu, leading to arrests and boat seizures by the Sri Lankan Navy, remains a sensitive point, particularly given domestic pressures within India, notably from Tamil Nadu. Chief minister MK Stalin has urged PM Modi to seek a resolution. Finding a constructive way forward on this longstanding issue will be a delicate balancing act, requiring careful diplomacy alongside the broader strategic and economic discussions.
How this issue is handled could significantly impact perceptions and the overall success of the visit in fostering goodwill.
The Mutual Benefit Equation
The “Lanka Play" is fundamentally rooted in mutual interest, albeit asymmetrical. For Sri Lanka, India’s continued engagement offers a pathway to sustained economic recovery. Access to India’s vast market (bolstered by the existing ISFTA and potential future agreements like ETCA), continued investment in critical infrastructure (energy, ports, connectivity), and financial stability support are crucial as Colombo navigates its post-crisis phase.
India remains Sri Lanka’s largest trading partner and a primary source of FDI and tourism—vital for rebuilding the economy. A stable, economically recovering Sri Lanka serves India’s interests far better than a collapsing state susceptible to instability or excessive influence from rival powers.
For India, the benefits are manifold. A stable and friendly Sri Lanka is a strategic imperative, securing India’s southern flank in the vital Indian Ocean region. Deeper economic integration provides opportunities for Indian businesses and exporters and leverages Sri Lanka’s strategic location for trade and logistics (chiefly via Colombo Port). It also potentially turns Sri Lanka into a key energy partner through grid connectivity and renewable projects.
Furthermore, demonstrating effective regional leadership through robust support for Sri Lanka bolsters India’s “Neighbourhood First" policy and enhances its credentials as a reliable partner, presenting a counter-narrative to China’s regional influence. This engagement is a long-term investment in regional stability and India’s geopolitical standing.
A Calculated Embrace
India’s engagement with Sri Lanka since the 2022 crisis has been a defining feature of its regional foreign policy under Modi. It’s a calculated embrace, combining genuine assistance with clear strategic objectives. From providing immediate lifelines to playing a key role in debt restructuring and driving strategic investments, India has cemented its position as an indispensable partner for Colombo’s recovery.
Modi’s visit offers an opportunity to deepen this multifaceted relationship, drive forward key connectivity and energy projects, and hopefully address lingering issues like the fishermen’s conflict.
Yet, challenges remain. Underlying anti-India sentiment, fueled by historical baggage and nationalist politics, persists in Sri Lanka and could resurface, potentially complicating innate integration efforts. Balancing relations with China, which remains a significant economic player on the island, will continue to be a delicate act for Colombo. India’s “Lanka Play," therefore, is not about outright dominance but about fostering interdependence, building resilience in its neighbour, and strategically positioning itself in a critical maritime space. The success of this play hinges on sustained commitment, sensitive diplomacy, and the tangible delivery of economic benefits for both nations.
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