ArrowArtboardCreated with Sketch.Title ChevronTitle ChevronIcon FacebookIcon LinkedinIcon Mail ContactPath LayerIcon MailPositive ArrowIcon PrintIcon Twitter
International relations

Sri Lanka walks India-China tightrope with port deal

Adani Group to build Colombo terminal in $700m agreement

India once again claims the container terminal deal in Colombo after being dumped by Sri Lanka earlier this year. (Source photos by Yuji Kuronuma and AP)

NEW DELHI -- Indian conglomerate Adani Group has signed a deal worth over $700 million to build a container terminal at the strategic Colombo port, a move that observers say will give a boost to Sri Lanka's struggling economy, where the expanding Chinese presence is a matter of concern to Delhi.

The Indian company reached an agreement with the state-run Sri Lanka Ports Authority (SLPA) and private company John Keells Holdings to jointly develop the West Container Terminal (WCT) at the port, a recent SLPA statement said. It called the 35-year build-operate-transfer agreement Sri Lanka's "largest foreign investment ever in the port sector." 

This follows a decision by Sri Lanka earlier this year to scrap, under pressure from trade unions, a 2019 memorandum of understanding signed with governments of India and Japan to develop and operate the East Container Terminal (ECT) at Colombo port. In response, India stressed the importance of adhering to international commitments. 

"Antagonizing India is never a good option" for Sri Lanka, Harsh V. Pant, head of strategic studies at the New Delhi-based Observer Research Foundation, told Nikkei Asia, pointing out that there was a lot of negative reporting in India after Colombo reneged on the ECT deal. "Clearly there was a sense in India that India was unhappy about it."

"If Sri Lankans are balancing it out [with the latest deal], it is good for Sri Lanka so that they can send out a signal that they do not want to tilt the balance in favor of one country or another," he said.

For India, Pant added, Sri Lanka is "a very important neighbor in the Indian Ocean ... and New Delhi would be concerned if the Chinese presence is becoming strategic" in the island nation.

India has often underscored that its Indo-Pacific vision is for a "free, open and inclusive" region, a euphemism often used to counter what it sees as China's expansionist ambitions. Along with its Quad partners Japan, Australia and the U.S., it has pledged to work to ensure peace and prosperity in the region.

China is already active in many Sri Lankan infrastructure projects, including the deep-water Hambantota port, which was built with its assistance. In 2017, Sri Lanka, scrambling to repay a reported debt of over $8 billion to China, signed a deal granting a 99-year lease on strategic southern port to a Chinese state-run company.

"Sri Lanka's economy is in a bad shape," Pankaj Jha, a professor of defense and strategic studies at the O.P. Jindal Global University, told Nikkei, observing that Colombo wants to reduce its import costs and export more, which it is aiming to do by offering "lucrative" deals to Indian businesses in exchange for greater access to the Indian market.

"Colombo is trying to play a very strategic game, which is business and corporate oriented, and that will also pave the way for India and Sri Lanka rekindling their ties in a new way," he added.

Jha pointed out that the repayment phase for the Chinese loans has begun for Sri Lanka and if the island nation's economy does not improve, it will be "offering more projects on a platter to China because they will be left with no other option," which is something India, too, will not be comfortable with.

"Now Sri Lanka is in a very vulnerable position," he said. "If India doesn't engage with Sri Lanka the way it wants New Delhi to, Sri Lanka again will be going back to China for aid and assistance," he added.

The WCT deal was announced ahead of a visit to Sri Lanka by Indian Foreign Secretary Harsh Vardhan Shringla from Oct. 2 to Oct. 5. On the last day of his visit, Vardhan called on President Gotabaya Rajapaksa and "underscored the importance India attaches to expeditiously taking forward mutually beneficial projects, including proposals to enhance air and sea connectivity between India and Sri Lanka," according to a statement by the Indian mission in Colombo.

The visit also coincided with the India-Sri Lanka joint military exercises in Ampara in the island nation that began on Monday and run through Oct. 15 which are aimed at promoting close relations between the armies of both countries and enhancing interoperability, and sharing best practices in counterinsurgency and counterterrorism operations.

"Now that the Indian foreign secretary has visited Sri Lanka and this WCT deal has been announced, certainly there has been an attempt to make it clear that India is very much part of the Sri Lankan landscape," the Observer Research Foundation's Pant said. "But at the end of the day, every country is playing a longer game -- Sri Lanka has to keep India and China happy; China has to push and see how far they can go, and move India out; and India has to make sure they are not out of the game."

Sponsored Content

About Sponsored Content This content was commissioned by Nikkei's Global Business Bureau.

You have {{numberArticlesLeft}} free article{{numberArticlesLeft-plural}} left this monthThis is your last free article this month

Stay ahead with our exclusives on Asia;
the most dynamic market in the world.

Stay ahead with our exclusives on Asia

Get trusted insights from experts within Asia itself.

Get trusted insights from experts
within Asia itself.

Try 1 month for $0.99

You have {{numberArticlesLeft}} free article{{numberArticlesLeft-plural}} left this month

This is your last free article this month

Stay ahead with our exclusives on Asia; the most
dynamic market in the world

Get trusted insights from experts
within Asia itself.

Try 3 months for $9

Offer ends October 31st

Your trial period has expired

You need a subscription to...

  • Read all stories with unlimited access
  • Use our mobile and tablet apps
See all offers and subscribe

Your full access to Nikkei Asia has expired

You need a subscription to:

  • Read all stories with unlimited access
  • Use our mobile and tablet apps
See all offers
NAR on print phone, device, and tablet media

Nikkei Asian Review, now known as Nikkei Asia, will be the voice of the Asian Century.

Celebrate our next chapter
Free access for everyone - Sep. 30

Find out more