Monday, August 8, 2022

India: Not on the path of Sri Lanka

Sri Lanka of 81-billion-dollar economy and 22 million people is going through its worst economic crisis in decades and the political fallout is already being felt in the corridors of power since the country gained independence in 1948. The country was left by President Gotabaya Rajapaksa only a few days after thousands of protestors stormed his home and office, and with his resignation it is an end of two decades of rule by the Rajapaksa family.
The situation only got worse thereafter, as the country saw commercial borrowings — which constituted a mere 2.5% of foreign debt in 2004 — balloon to 54% by 2019. This was followed two years later by a sharp reduction in agricultural exports after the government banned the use of chemical fertilizers in April 2021 to promote organic farming.
The opposition is trying to prove that India is going in the same path as its ailing neighbour Sri Lanka. But being a student of Economics I would like to put here comparative facts with supporting data of the two countries. India has not been spared from global economic shocks as well . But it is better placed among large economies to handle the situation and I am sure that India will not collapse like Sri Lanka or Pakistan but we are certainly in trouble
Sri Lanka: At the end of 2019, Sri Lanka had $7.6bn (£5.8bn) in foreign currency reserves, which have dropped to around $250m (£210m). Sri Lanka now imports $3bn (£2.3bn) more than it exports every year, and that is why it has run out of foreign currency.
India: while India has a forex reserve of close to $600 billion, sufficient to cover the merchandise imports of more than a year. As per RBI data from its last annual report, the foreign debt has increased from $409 billion in 2013 to $615 billion in December 2021. But, ‘External Debt: GDP’ ratio has improved from 22.4 percent in 2013 to 20 percent in 2021. This has happened despite contraction in the GDP on account of the Covid-19 pandemic.
Economic growth
Sri Lanka: The country was a model for emerging market economies and grew at an average 6.2 per cent between 2010 and 2016, according to world Bank figures. In the next three years, it dropped to 3.1 per cent .
India: On the other hand, India has been recovering well from its pandemic slump and is projected to grow at fastest pace among major economies. While the International Monetary Fund (IMF) has projected India to grow by 8.2 per cent in FY 2023, World Bank expects a growth rate of 8.0 per cent
Sri Lanka: Sri Lanka’s government has more than $51bn (£39bn) in foreign debt, $6.5bn of which is owed to China, and the two countries are in negotiations about how to restructure the debt.
India: According to the RBI’s latest dataThe external debt to GDP ratio declined to 19.9 per cent at end-March 2022 from 21.2 per cent at end-March 2021. There is no debt crisis in India as Government dismisses the fear saying “Liability Manageable”.
Sri Lanka: The price of everyday goods has risen sharply. According to the Sri Lankan Government, inflation is running at more than 50%.
India: Rising prices of key commodities, especially food and oil has been a concern for India as well. However, inflation rate is quite lower than Sri Lanka. Retail inflation jumped to an 8-year high of 7.79 per cent in April, while whole sale price inflation (WPI) jumped to a new high of 15.1 per cent on back of soaring commodity, food and fuel prices.
Sri Lanka’s passage into darkness needs to be viewed as part of a culmination of consistently pursued poor economics in a populist policymaking environment, where decisions were made without caring for consequences – much like what is being seen in some of the States of India now.
Prof. Mithilesh Kumar Sinha
Department of Economics
Nagaland University

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