DNA Special: Mistakes that plunged Sri Lanka into its worst-ever economic crisis

At present, Sri Lanka's capital Colombo has turned into Asia's most turbulent capital. There have been violent protests against the Sri Lankan government in Colombo and people allege that the government wants to starve 2.5 crore people of the country. At present, a cup of tea is available in Sri Lanka for Rs 100 and for cooking gas, there are long lines. Apart from this, diesel is over in Sri Lanka and the government does not even have the money to buy petrol. However, in this hour of crisis, India has sent four consignments of 40,000 Metric Tonnes of Diesel and 40,000 Tonnes of Rice separately to Sri Lanka.

Although there is a lot of anger among the people of Sri Lanka against the government, these people are now saying that they would love to die with the bullets of their army, but they do not want to starve.

There is an emergency in Sri Lanka right now. All the 26 ministers of Mahinda Rajapaksa's government have resigned from their posts. Of these 26 ministers, four belonged to the Rajapaksa family. Sri Lankan President Gotabaya Rajapaksa has spoken of establishing a Unity Government in the country, in which the leader of the opposition can also be part of the cabinet. However, the people of Sri Lanka are saying that the Rajapaksa family is saving their family members by forming such a government.

Sri Lanka got independence from British rule in 1948, a year after India. However, Sri Lanka has never achieved the same political stability as India and from 1983 to 2009, there was a 26-year-long civil war.

It was during the same period that the Liberation Tigers of Tamil Eelam (LTTE) organization was active in Sri Lanka and demanding a separate country for Sri Lankan Tamils. After this civil war, Sri Lanka made significant progress between 2009 and 2019. And during this time, western countries used to say that India should learn from Sri Lanka's economic model.

Three years ago, the World Bank placed Sri Lanka in the list of countries in the world where most of the citizens' incomes was in the category of High Middle Income. Then, in this country with a population of 2.5 crore, the per capita income reached $3,852, i.e., about Rs 2,90,000. While in 2019, India's per capita income was $2100 US dollars, i.e., about Rs 1,57,000.

Now the question is, what happened in the country which the World Bank considered as an economically prosperous country three years ago and where the per capita income was more than double that of India, that country is today amid riots for grain and today the same Sri Lanka has to borrow from India again and again? So how did all this happen?

The first mistake that happened to Sri Lanka was that it made its economy dependent on loans taken from other countries. In 2016, Sri Lanka had a debt of $46 billion, i.e., Rs 3,45,000 crore. But in just six years, it has more than doubled. At present, Sri Lanka has a debt of Rs 6 lakh crore. This is equivalent to the annual GDP of Sri Lanka, which is 81 billion US dollars, i.e., about Rs 6 lakh crore.

That is, Sri Lanka did not take care at all while taking the loan that it would have to return the money with interest. And if it can't return this money, its economy will be ruined. Countries like China took advantage of this lapse of Sri Lanka. China's share of the total debt that Sri Lanka has today is more than 10 per cent.

The second mistake from Sri Lanka is that it took the loan, but did not use this loan in the right place. That is, if he had spent this money on the industrial sector of Sri Lanka, set up big factories there and created a new income source in the country, then perhaps this debt would not have hurt him so much. Sri Lanka does not have much income source and earns the most from tourism, tea and textile industry.

In 2018, the Sri Lankan government earned $5.6 billion, i.e., Rs 44 billion from the tourism sector. But after Covid. This income source was also under lockdown and in the year 2021, the Sri Lankan government earned only Rs 2 billion from this sector. Similarly, the tea industry and the textile industry also broke their backs. In a nutshell, Sri Lanka did not even increase its income sources and it continued to take loans.

One more thing. This loan taken from other countries was also a gift of corruption. In 2015, when the presidential elections were held in Sri Lanka, the Rajapaksa family then spent loans from Chinese companies on their election campaign. There are allegations that China itself wanted Mahinda Rajapaksa to win this election and that is why its companies were ready to give huge loans to Sri Lanka.

The third mistake from Sri Lanka was that it never tried to be self-sufficient. Most of the goods and services that Sri Lankan citizens use come from outside. Now foreign exchange is required to buy goods from other countries and Sri Lanka has almost exhausted this reserve of foreign exchange.

At present, Sri Lanka is left with only $2.31 billion, or Rs 17.5 crore, as foreign exchange. While its one-year expenditure on import of crude oil and other commodities alone is Rs 91 crore. If Sri Lanka had not depended on other countries for its needs, it would not have had this situation today.

The biggest reason for this plight of Sri Lanka is the politics of freebies. In 2019, when Sri Lanka's presidential elections were held, the Rajapaksa family of Sri Lanka had announced that if their party won the election, it would halve the Value Added Tax (VAT) levied on services on goods in the country. And when the Rajapaksa family's party won the election, the VAT was reduced from 15 per cent to 8 per cent under the promise, causing a loss equivalent to 2 per cent of its GDP to Sri Lanka.