Why India won’t experience a similar economic disaster as Sri Lanka

Image by Walkerssk from Pixabay
Image by Walkerssk from Pixabay

Due to past economic imbalances, restrictions placed by the International Monetary Fund (IMF), and authoritarian government policies, Sri Lanka is experiencing a severe economic crisis.

Let’s investigate the causes of the problem in Sri Lanka

After 26 years of civil conflict, Sri Lanka started to recover in 2009, and from that point until 2012, its postwar economy grew at an average annual rate of 8 to 9 percent.

Nevertheless, a decline in global commodity prices, a decline in exports, and a sharp rise in imports caused its average GDP growth rate to fall sharply after 2013.

Sri Lanka experienced huge fiscal deficits throughout the conflict, and the 2008 global financial crisis reduced its foreign exchange reserves.

As a result, the nation was forced to borrow $2.6 billion from the IMF in 2009.

Despite applying for a $1.5 billion IMF loan in 2016, IMF requirements caused Sri Lanka’s economic situation to worsen.

sri lanka, Why India won’t experience a similar economic disaster as Sri Lanka
Source: Department of External Resources, Sri Lanka

Financial shocks experienced recently

The 2019 Easter bombings in Colombo’s churches, which claimed multiple lives, drastically decreased tourism, depleting the country’s foreign exchange reserves.

The newly elected government, headed by Gotabaya Rajapaksa, promised farmers cheaper tax rates and a larger array of social programs throughout their campaign.

The problem is made worse by these bad policies’ hurried implementation.

Additionally, the COVID-19 crisis in 2020 worsened matters and severely affected exports of tea, rubber, spices, and textiles.

The number of foreign tourists arriving has drastically decreased, which has caused a decline in earnings.

Government expenditure surged in 2020–21 to make up for the shock caused by the COVID–19 epidemic, but the budget deficit soared to 10%, and the debt–to–GDP ratio rose to 119.

sri lanka, Why India won’t experience a similar economic disaster as Sri Lanka
Source: Research Gate and IMF

Fertilizer Ban law

Imports of fertilizers will be outlawed starting in 2021, and Sri Lanka will change its agriculture system to rely only on organic and natural methods.

The quick switch to organic fertilizers has a considerable effect on food production.

Sri Lanka’s president proclaimed an economic emergency to address soaring food costs, a weakening currency, and rapidly declining foreign exchange reserves.

How does the situation in India vary from that in Sri Lanka?

As was already said, various causes play a role in Sri Lanka’s economic crisis. The scenario in India, however, is different from Sri Lanka’s.

Let’s examine them one by one:

Forex reserve

On September 3, foreign exchange reserves rose to an all-time high of $642 billion. This amounted to imports for 14–15 months in 2021–2022.

Additionally, the available foreign exchange reserves last for ten months. India has higher foreign reserves than other growing economies as a result. It can, therefore, successfully manage its economy because of this.

Agriculture Production

India is a country with a large number of agricultural resources. The nation has become a net agriculture exporter since the introduction of HYV seeds.

India has developed into a self-sufficient nation and a significant exporter of agricultural goods to developed nations like the United States, the United Arab Emirates, and Japan.

It puts India in a better position than other nations experiencing price changes and food shortages due to a lack of basic food goods.

Growth of the Indian economy

It ranks third in purchasing power parity and has the fifth-largest nominal GDP in the world (PPP).

Widespread economic liberalization was introduced in India as a result of the conclusion of the Cold War and the severe balance-of-payments crisis that hit the country’s economy in 1991.

Annual GDP growth has been between 6 and 7 percent since the turn of the century, and from 2013 to 2018, India surpassed China as the fastest-growing major emerging economy in the world.

However, the Indian economy is plagued by several problems, including a labor shortage, poor education, and corruption.

Finally, after researching India’s current economic state, we found this. It has a world-class economy that is well-managed and expanding quickly.

It is unlikely to find itself in a position similar to Sri Lanka’s or any other nation experiencing an economic catastrophe. 

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sri lanka, Why India won’t experience a similar economic disaster as Sri Lanka

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