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Active Indian engagement in Sri Lanka’s port developments would be a much more productive path for both countries
The best example comes from the United States at the peak of its powers and self-confidence at the end of World War II. The ‘Marshall Plan’ (officially the European Recovery Program) was an initiative to aid war-ravaged Europe, in which the United States granted $ 17 billion (approximately $ 160 billion in current dollar value) to help rebuild the devastated economies of allies and the vanquished.
This prima facie altruistic action yielded manifold benefits for the United States in the long run. Yet, it probably could not have been pulled off in a country less confident of itself as the US was at the end of the war and without the help of the threat of Communist domination.
Fundamental asymmetry
Decision makers in countries like Sri Lanka that have to exist in “the environment” constituted by India face a daunting challenge: they have to pay heed to the environment in all their decisions; but their Indian counterparts rarely think of how the implications of their actions on the other inhabitants of the common space. This fundamental asymmetry can be illustrated with reference to the current tensions over Sri Lanka’s ports.
An efficient port and good logistic services are among Sri Lanka’s few comparative advantages. Depending on the year, Colombo is either India’s first or second largest port. In 2013, it handled more containers than India’s largest, the JNU Port in Nhava Sheva near Mumbai. More than 70% of the four million plus TEUs Colombo handles every year are destined for or coming from India.
When the plans were being developed in 2003-’04 for the deep-water extension of the Port of Colombo, it was understood that the multiple new terminals would be offered to foreign operators. The success of the South Asian Gateway Terminal operated by a private entity under a variant of the landlord-port model made this a given. It was hoped that Indian entities would bid. Informal approaches were made.
Indian Government officials did not take the invitation to bid seriously. They said the Indian ports were so inefficient that the Government was bringing in foreign operators such as DP World to straighten them out. In the end, no Indian entities bid.
Sri Lanka took into account its environment and facts such as 70% or more or the containers going through Colombo were coming from or headed to India and offered India the opportunity to participate. But, officials and firms thinking within the narrow frame declined.
So, Sri Lanka went with the willing, who happened to be Chinese. This then caused concern among the decision-makers and opinion-leaders in New Delhi. If not managed carefully, these security concerns could result in all sorts of actions against Sri Lanka, including accelerated efforts to develop alternatives to Colombo on Indian soil, or even to compel the use of other transhipment hubs over Colombo.
It must be noted that no argument is being made that Colombo be given any kind of preferential status. Even today, it competes with other transhipment ports on value for money and receives no special treatment.
Indian transhipment business
In light of India’s expected accelerated growth, it will be necessary to develop container ports in addition to Jawaharlal Nehru Port and Colombo that now handle the bulk of India’s container traffic. But there is no reason to discourage the use of Colombo or Hambantota which have natural advantages.
Loss of Indian transhipment business would leave Sri Lankan decision makers with two choices, both bad. First is the more unpleasant one of accepting the decline of Colombo as a maritime transportation hub, as the then governments did when Colombo lost its status as an aviation hub in the 1960s. The other alternative is to aggressively seek other business to replace India’s.
There are few alternatives to China, especially as Colombo and Hambantota make a lot of sense in the context of China’s efforts to bypass the choke points of the Malacca and Lombok-Makassar Straits through alternative routes via Myanmar (Khaukphyu, where the Chinese have already built the port and oil and gas pipelines) or Thailand (the long-discussed canal across the Kra Isthmus). This could then trigger a harsh response from India on security grounds.
Active Indian engagement in Sri Lanka’s port developments would be a much more productive path for both countries. It is true that India does not have exemplary indigenous port operators. But capital can be combined with external skills, either by employing skilled expatriates (DP World did not become a world-class port operator relying solely on Dubai citizens) or through a joint venture.
Only one terminal in the Colombo deep-water port has been leased out to the Chinese. The window has not closed on Indian participation. The Government should aggressively solicit Indian involvement.
Mindset change
The mindset problem is not limited to Indian Government officials. Small economies in the neighbourhood like ours are unattractive to executives in Indian “multinationals” who much prefer investing in faraway Britain. In 2003, it took direct orders from Ratan Tata to get VSNL, now Tata Communications, to invest in Sri Lanka. The managers of VSNL saw no value in this small market.
There is hope. If decisions get made and implemented and growth picks up, the result could be a more self-confident India. In a self-confident India, it will be easier to think beyond the Indian territory, of South Asia as the system. Even short of that, the repeated statements of commitment to ensure the region participates in India’s resurgence on the part of Prime Minister Modi and his team suggest a mindset change may be possible.
Unless the mindset changes, both in the Indian Government and in the Indian private sector, Sri Lanka is in for a rough ride.
