After months of surviving under economic turmoil thanks to financial assistance and credit lines offered by India, Sri Lanka finally announced ‘Default’ on their $51 Billion foreign debts on Wednesday, April 13th, 2022. After declaring ‘Default,’ Sri Lanka acknowledges that they can no longer pay any repayment installments of their loans. Apart from that, Sri Lanka again asked India to provide $2 Billion as emergency financial assistance to meet the day’s end. Currently, inflation, food and fuel shortages, medical crisis, and other necessary items are beyond controllable. Every day, thousands of Lankan people are forced to sleep with an empty stomach. The prices for milk and baby food have also gone skyrocketed. Exams are called off as Sri Lanka cannot even afford to buy papers. Extended power cuts are now the new normal in Sri Lanka. In places like Colombo, 12-14 hours of power cuts are very common these days. All the lights on the highways are also blacked out to save power. Fuel shortage left almost every mode of transportation crippled. The Lankan fishermen cannot even go to the sea as no diesel is left in the country.
The youths of Sri Lanka now have started to protest in front of the Presidential Palace, demanding the immediate stepping down of President Gotabaya Rajapaksa.
If you wonder what went wrong for Sri Lanka, let us begin from the beginning.
The Rajapaksa’s Election Winning, Family First, and Everything For Free Economic Model:
The Rajapaksa family led the ‘extermination’ of Sri Lankan Tamil during the ‘Sri Lankan Civil War, which lasted between 1983 and 2009. Later the entire Rajapaksa family grab power by winning elections in landslide victories one after the other. Recently resigned Prime Minister of Sri Lanka Mahinda Rajapaksa became Prime Minister several times. Later, Mahinda Rajapaksa made himself President and created a major constitutional crisis in the island nation. But later, the problem was solved, and Maithripala Sirisena became the Prime Minister, and the nation went for the 2020 General Elections. In this election, Mahinda Rajapaksa led, SLPFA or Sri Lanka People’s Freedom Alliance, won 145 seats out of 225 and became the Prime Minister. His brother Gotabaya Rajapaksa became President of the nation. His other brother Basil Rajapaksa became Finance Minister, who now has resigned. Finally, his elder son Namal Rajapaksa became the Minister of Youth and Sports who has fled the nation to the Maldives. Gotabaya’s other brother Chamal Rajapaksa became the Speaker of the Parliament.
The Rajapaksa family captured the entire political ecosystem of the nation. Then the Dole Politics or the Politics of Populism and Free Things came into action.
How The Economic Crisis Begun?:
Any Economic Crisis takes time to build up and then burst into epic proportions. There were five different reasons behind this extreme financial crisis.
Stage 1: Rampant Nepotism and Corruption:
The government of Sri Lanka was mainly run by the Rajapaksa family. Basil Rajapaksa was made the Finance Minister of the nation. Basil Rajapaksa was popular as ‘Mr. 10 Percent’ as he used to take a 10% cut on every government project in Sri Lanka. Apart from that, Basil Rajapaksa was also under investigation for various other corruption charges. But Mahinda Rajapaksa and Gotabaya Rajapaksa put a blind eye for them.
Stage 2: Appeasement Politics and Policies:
To turn the people’s heads away from the corruption charges, the Rajapaksa family lowered the taxation rate, which lowered the state’s income by more than 33%. Then VAT or Value Added Tax was reduced to only 8% from 15%, and PAYE or Pay As You Earn Tax or Income Tax was abolished. Then the government started offering various freebies like food, electricity, etc., to the people to further stop them from voting against the Rajapaksa family.
Stage 3: Loans and More Loans to Support the Freebies:
Then the Rajapaksa family started to take huge loans from the Chinese Communist Party CCP to sustain their ‘freebie politics’ and take ‘cut money’ from them. To get a perspective, before 2019, the ‘Debt to GDP ratio’ of Sri Lanka was 42% which increased to 119% in 2021. Sri Lanka started to take new loans from China to repay old loans from China. This is a classic example of the ‘Chinese Debt Trap.’ But according to paperwork, Chinese Loans only accumulate 10% of the entire foreign debts of Sri Lanka.
How magical this is, right?!
On April 12th, 2022, Sri Lanka announced ‘Default’ on every External Debt, with an accumulated amount of $51 Billion.
Stage 4: COVID-19 and Tourism Industry Collapse:
Then in 2020, the CCP gifted Wuhan Virus to Sri Lanka and the world. This leads to the total collapse of the Sri Lankan Tourism Industry, just like any other nation. But it hit the island nation harder than other nations as it had concentrated all its incomes from the tourism industry and the global lockdown just stopped the flow of tourists.
Stage 5: Agricultural Disaster:
Mahinda Rajapaksa’s dream was to produce ‘only organic’ food in Sri Lanka. Therefore, he made his brother Gotabaya Rajapakse ban all the inorganic or chemical-based fertilizers in Sri Lanka and ordered huge amounts of organic fertilizers from China. This created a massive disaster for the farmers of Sri Lanka, especially the ‘Tea Producers.’ Sri Lanka earns more than USD 1 Billion from exporting its tea. But the Chinese fertilizers were beyond useless. They were contaminated. Furthermore, the Russian invasion of Ukraine dropped the sale of tea even further as Russia is the biggest importer of Sri Lankan tea.
All these created the financial crisis in Sri Lanka.
Implications Concerning India:
There are way too many implications concerning India you can think of. Our politicians and we can learn a huge lesson from this crisis and take necessary actions to avoid it in the future.
Toxic Freebie Culture In India:
We Indians, Love Free Things! This is a Universal Truth or Fact. Even if we are given Poison for free, we will take it. If the free stuff is good or even useful for us, we will take it. The Politicians of almost every state in India successfully detected the pulse of Indians and started to offer everything for free. In States like Delhi-NCR, Uttar Pradesh, and Punjab, you will get electricity for 200 units. Then almost every state offers ‘Free-Ration’ to the people, even for those who are very rich. Apart from that, free Laptops, Tablets, Bicycles, School Bags, School Uniforms, Books, Mixer Grinders, Television Sets, and many things are given free of cost to everyone in the states. This freebie culture is putting the states like West Bengal, Punjab, Gujrat, Maharashtra, Uttar Pradesh, Delhi-NCR, Himachal Pradesh, Telangana, Tamil Nādu, and almost every other state into a deeper debt crisis.
Freebies and Socialism Makes People Lazy:
For example, take Venezuela. It is the highest oil-rich nation on earth, yet the inflation rate in the country made this country extremely poor. This is due to the plans of Ugo Chavez. When he came to power, he started to provide everything for free in the country. So, the people stopped working, and large multinational companies left. People got money in their bank accounts, free food, education, transport, and healthcare. Venezuela was able to do this Socialist Populism due to high oil prices. Then when the Wuhan Virus Pandemic hit the world and oil prices plummeted, people now needed literally a ton of Bolivar (Venezuela’s currency) to buy a Kilo of Wheat. Sri Lanka did the same. Now Indians are voting in the state elections for the populist socialists promising to offer free stuff. And where the free stuff will be given from? The states offering free stuff are not generating enough revenue to sustain their freebies policy. So, they are taking massive loans from various sources at high-interest rates and spiraling down into unsustainable debt traps. While the union government is getting money for the freebies by increasing the fuel prices almost every day.
Conclusion:
Now, Sri Lanka seeks help from India, and India is helping, but we all have our limits. The Sri Lankan people, especially from their Northern Districts, are fleeing to India for better chances in life. This can create another major exodus and refugee crisis in India.
We Indians need to change our mindset and stay away from the freebies and vote for those offering sustainable development and more income generation policies. Nepal is also going into the way of bankruptcy and started curbing imports, while Pakistan is also in financial doldrums. Myanmar and Bangladesh are also going through financial crunches. Therefore, the Indian Sub-Continent is going through a very difficult situation. On the other side of the world, Peru has already declared an emergency, as they fell into the same old Chinese Debt Trap.