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India extends $100 mn loan to Sri Lanka


India and Sri Lanka signed an agreement for a $100-million loan from the Export Import Bank of India to support the island nation’s efforts to expand solar power coverage.


GS-II: International Relations (India’s Neighbors, Foreign Policies and treaties affecting India’s Interests)

Dimensions of the Article:

  1. India – Sri Lanka and debt
  2. Sri Lanka’s Approach to India for help with Currency
  3. About India’s loan to Sri Lanka for Solar Power
  4. About International Solar Alliance (ISA)

India – Sri Lanka and debt

  • Sri Lankan Prime Minister has told that there was no final decision on the East Container Terminal (ECT) project at the Colombo Port, which Sri Lanka, India and Japan in 2019 agreed to jointly develop.
  • The Sri Lanka government was accused of “giving away national assets” to India, though Sri Lanka’s Port Authority was to retain 100% ownership of the facility, as per the 2019 tripartite Memorandum of Cooperation.
  • South Asia watchers often resort to the India-China geopolitical lens, while analysing Sri Lanka’s international relations in the neighbourhood and beyond.
  • The examples of Singapore-Malaysia and New Zealand-Australia indicate that a smaller country’s economic success is tied to having a strong or at least stable relationship with its larger neighbour.
  • Both India and Sri Lanka should focus on increasing the volume and quality of people-to-people links.

Sri Lanka’s Approach to India for help with Currency

  • In 2020, the President of Sri Lanka requested India for a USD 1 billion credit swap, and separately, a moratorium on debts that the country has to repay to India.
  • But India-Sri Lanka relations have been tense over Colombo’s decision to cancel a valued container terminal project at Colombo Port, which made India put off the decision.
  • Earlier, in July 2020, the Reserve Bank of India (RBI) extended a USD 400 million credit swap facility to Sri Lanka, which the Central Bank of Sri Lanka settled in February. The arrangement was not extended.

About India’s loan to Sri Lanka for Solar Power

  • The Sri Lankan government said one of the “key plans” of the government was to generate solar power, with the contribution of state-owned buildings, places of worship and houses of the low-income families.
  • Over the last five years, Sri Lanka has sought to tap more renewable sources of power, particularly solar power. The country’s electricity demand is expected to grow at an average 5.3% from 2015-2034, according to the Public Utilities Commission.
  • India said the $100 million line of credit will help finance various projects Sri Lanka’s solar energy sector, including those announced at the founding conference of the International Solar Alliance (ISA) held in March 2018, in New Delhi, such as rooftop solar photo-voltaic systems for households and government buildings.
  • As many as 89 countries, including Sri Lanka, signed the framework agreement of the ISA, jointly launched by the Prime Minister Narendra Modi and former French President Francois Hollande in 2015, with the aim of bringing together countries to promote large-scale deployment of solar energy.
  • The line of credit extended by India, according to officials, is for a period of 20 years, with an interest of 1.75 %. Sri Lanka owes about $960 million in debt repayment.

About International Solar Alliance (ISA)

  • The International Solar Alliance is an alliance of 121 countries initiated by India, most of them being sunshine countries, which lie either completely or partly between the Tropic of Cancer and the Tropic of Capricorn.
  • The primary objective of the alliance is to work for efficient consumption of solar energy to reduce dependence on fossil fuels.
  • The initiative was launched by Prime Minister Narendra Modi at the India Africa Summit, and a meeting of member countries ahead of the 2015 United Nations Climate Change Conference in Paris in November 2015.
  • The Headquarters of ISA is in Gurugram, Haryana, India.
  • The Purpose of ISA is Bring together a group of nations to endorse clean energy, sustainable environment, public transport and climate
  • The membership of ISA is applicable to all UN Members.
  • The alliance is a treaty-based inter-governmental organization.
  • Countries that do not fall within the Tropics can join the alliance and enjoy all benefits as other members, with the exception of voting rights.
  • After the United Nations, it is the largest grouping of states world-wide.
  • The framework agreement of the International Solar Alliance opened for signatures in Marrakech, Morocco in November 2016, and 200 countries have joined.

-Source: The Hindu

November 2023