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How Is India’s ‘Neighbourhood First’ Policy Helping Sri Lanka To Cope With Its Worst Economic Crisis?

On May 30, India extended its $1 billion credit line to Sri Lanka for another year to aid the island country, struck hard by an unprecedented economic crisis, in getting much-needed food, medicine, and other essentials. In March last year, the SBI and the Sri Lankan government agreed on a $1 bn loan help. In the zenith of the country’s economic crisis, India extended the credit line to the island country.

Since last year, the credit help is being used for the urgent acquisition of fuel, medication, food entities, and industrial raw materials in accordance with Sri Lanka’s needs and priorities.

India extends $1 billion credit line to Sri Lanka by another year.

So far, in 2022, India has provided $1.4 billion in help to the island country, including a $400 million RBI currency dealings; the deferment of a $0.5 bn loan and another $500 mn as a line of credit for the government to maintain crucial petroleum imports. 

What is India’s ‘Neighbourhood First’ Policy?

India’s foreign policy is actively focused on strengthening ties with India’s close neighbours, which is called the Neighbourhood First policy. India desires a peaceful, prosperous, and stable neighbourhood to achieve peace, prosperity, and stability in the South Asian region and a more prominent emphasis on development. For example, India’s SAARC satellite is committed to South Asian peace and development.

India’s helping hand to the neighbour!

Earlier, to promote mobility and accessibility in Sri Lanka, the High Commissioner handed over 75 buses to the Transport Board. 500 buses are given to the island country as part of Indian aid to improve the public transport system.

In a similar approach, India gave out 125 SUVs to the Sri Lanka Police under a credit line in December to help the island country solve the acute mobility restrictions faced by the police due to a lack of cars.

In May of last year, the Sri Lankan government declared a debt default on nearly $51 billion in foreign loans, the first in the country’s history. India provided over USD 4 billion in financial aid to Sri Lanka throughout the year, providing a much-needed lifeline to a needy neighbour. As the financial crisis unfolded in January, India provided the island country with a USD 900 mn loan to replenish the exhausted foreign reserves. Later, it gave Sri Lanka a USD 500 million credit line to help cover the country’s petroleum imports. Due to the urgency of the circumstances, the loan line was eventually increased to USD 700 million.

Prime Minister Narendra Modi with Sri Lankan President Ranil Wickremesinghe.

Likewise, although the island country has often played the China card against India and suffered due to white elephant projects backed by Beijing, the Indian government was the first and foremost to send a letter to the International Monetary Fund soliciting debt relief for Colombo. In January 2023, India became the first country to give the International Monetary Fund its letter of support for funding and debt restructuring of the island country, exemplifying its sustained support for the island country’s economic recovery. In 2022, India supplied Colombo with $4.5 billion in aid to help it overcome its catastrophic financial predicament.

Why is India interested in helping Sri Lanka?

Sri Lanka has been a notable strategic partner for India. India may take this opportunity to rebalance its diplomatic ties with the island country, which have been strained due to its proximity to China. As the spat between the island country and China over fertilisers developed, India’s delivery of fertilisers to Sri Lanka at the latter’s proposal is considered a good move in bilateral ties.

Extending diplomatic ties with the island country will aid India’s efforts to keep the Sri Lankan archipelago out of China’s Indo-Pacific ‘string of pearls’ game. To the extent that India can assist in alleviating the miseries of Sri Lankans, it should do so with caution, bearing in mind that the optics of its help is also vital.

India Extends Its $1-Bn Credit Line To Sri Lanka By Another Year.


India, which has adopted the “Neighbourhood First policy” to strengthen ties with its neighbours, went that extra mile to assist Sri Lanka in overcoming the current crisis and attaining its full potential, reaping the benefits of a stable, friendly neighbourhood.

Proofread & Published By Naveenika Chauhan



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