PM Modi's Sri Lanka visit aims to counter China's growing influence

In a recent conversation with Business Standard, KM Mahinda Siriwardana, finance secretary in the Sri Lanka government, said investment in Port City Colombo was the biggest business plan the island had to offer. 

Investment in the Port City, seen as a micro version of the Dubai International Financial Centre, is, however, not a priority for India.  

For China, too, the investment already made here is far less attractive than in ports like Hambantota, where it plans to set up a $3.7 billion oil refinery – far bigger in size than what the Sri Lankan market needs. 

However, wary of the Chinese influence, India has begun chasing out most investments it sees as sympathetic to it in Sri Lanka. 

For instance, the presence of foreign ships under the guise of research and development, welcome till 2022, has been frowned upon by India.  

Similarly, Sri Lanka Sustainable Energy Authority and the Indian company U-Solar Clean Energy Solutions signed a contract in March last year for building hybrid renewable energy systems in three islands in the Jaffna peninsula in the island’s north. The project was initially supposed to be a China-led one with Asian Development Bank (ADB) financing.  

This has become possible as India’s economic heft has risen with the $4 billion in food and financial assistance it offered to Sri Lanka just days into the meltdown of 2022, which brought life back to the island’s economy. 

This will be followed up more substantively as Prime Minister Narendra Modi makes his first visit to the island since the meltdown on April 4. This comes after the visit by Sri Lankan President Anura Kumara Dissanayake to India in December 2024.  

Siriwardana said India’s assistance nursed the economy back to health, adding that he was also pleased to point out that almost half of it had not been used. “We don’t expect to draw down that sum going ahead,” he said.  

While China also helped forgo the interest due on loans owed to Sri Lanka for two years, Indian support made it possible for the International Monetary Fund (IMF) to offer about $334 million of Extended Fund Facility to Colombo to support its economic policies and reforms. 

The island’s fiscal condition has just marginally improved. The IMF has given it a debt deferral of three years, till 2028 but has warned in its third review of the economy in February 2025 that “there is no room for policy errors”. 

Solar and more 

During his visit, Modi will inaugurate, virtually, the Sampur solar plant in eastern Sri Lanka. The 120 Mw plant, to come up in two stages, is a joint venture between NTPC and Ceylon Electricity Board. The project has languished since 2006, when it was envisaged as a coal-fired plant. It is one of the many such projects the country has gone slow with and paid the price for it.  

Even now, coming out of the economic crisis of 2022, Sri Lanka has lots of expectations for investment in the island, but few clear projects to offer. This has made both India and China firm up the economic agenda they would wish the country, with a population of almost 22 million, to pursue.  

For India, the big theme is energy. For China, it is ports.  

The Indian government will make energy cooperation a big theme. A government official said: “Trincomalee is where we expect all the energy-related investments to come up as a hub.” This includes developing a 14-inch diameter liquified natural gas pipeline to the city from Tamil Nadu, making it the base for electricity grid connectivity with India. 

Former Indian High Commissioner to Sri Lanka YK Sinha was forthright: “India has played a massive role when Sri Lanka needed it most. Now we are pushing high-value strategic investments in the nation instead of the high-demonstration but low-utility projects that China undertook here, like the Mattala airport and the International Convention Centre at Hambantota.” 

 

Sri Lankan sojourn

  On the streets of capital Colombo, in scenic Kandy or in Anuradhapura, which is dotted with ancient ruins, all the buses and trucks are Lanka Ashok Leyland. But they often ply on roads built by China.  

The key road from Colombo to the Bandaranaike International airport on one side and the key fishing city Negombo on the other side was built by the China Metallurgical Group Corporation.  

The pharmacies, as TS Prakash, general manager and country head of Revlon Beauty Products, Lanka (Pvt) Ltd, points out, are mostly stocked with Indian formulations.  

Barista signboards dominate entries to all major malls. Barista is by far the largest coffee chain in the country. India has pushed the country to use unified payments interface (UPI) as its digital money network. The Sri Lanka Budget, tabled in March 2025, promises to introduce a Sri Lanka Unique Digital Identification (SLUDI) for all citizens. Telecom officials from the country said it would be modelled on India’s Aadhaar.  

On the ground, the progress so far has been limited, with only about 300 major retailers reportedly signing up for it. Those numbers will need to rise, since the highest number of tourists into Sri Lanka is from India (14.9 per cent in 2024). China is a distant sixth, at 4.9 per cent.  

Adani Ports and SEZ has almost completed building the West Terminal at the Colombo Port. The port complex is Sri Lanka’s most prized asset, ranking 22nd in the global league of ports. No Indian port features in the top 35 ports of the world. But at the same time, Sri Lanka has been wary of expanding the investment network with India. 

The country with a puny 4.5 Gw of power-generation capacity, depends on costly fuel for a quarter of its energy needs, but has pushed back against the Adani Wind Energy project. How long the pushback will continue is difficult to say.  

As Milinda Moragoda, founder of Pathfinder Foundation, a Sri Lankan policy research and advocacy organisation, said the provincial elections due later this year would give an indication of how the ruling coalition, led by Dissanayake, would evaluate the thorny issue of foreign investment, including into the stalled Port City Colombo.