Sri Lanka is reeling under last year’s crushing economic meltdown and consequent political turmoil, but it is still a good time to invest in the cash-strapped island nation, according to Indian business leaders in capital Colombo.

While acknowledging the many challenges facing the business community in Sri Lanka, the CEOs of Indian companies point to “enormous scope” for foreign direct investment in a host of sectors, such as information technology, tourism, and renewable energy. Investor sentiment outside Sri Lanka was rather negative last year, “mainly due to the kind of international media coverage of the crisis here”, but there is a “welcome, positive shift” compared to June last year, when the crisis escalated, notes Ashish Chandra, CEO and MD, Airtel Lanka. “Essential supplies have been restored, there is no social unrest, the government has taken many important steps for economic recovery,” he says.

T.S. Prakash, Country Head of the Umesh Modi Group of Companies, highlights “political stability and policy stability” as the two main factors that businesses look for. “We are confident that the Sri Lankan authorities are taking the rights steps to achieve both in the next few years,” he says.

Policy measures

On the policy front, President Ranil Wickremesinghe recently said his government has implemented 15 tasks — including a sharp hike in interest rates, and in fuel and energy pricing — set out by the International Monetary Fund (IMF), whose $2.9 billion package Sri Lanka is desperately hoping for, to expedite its economic recovery. Politically, his government faces mounting criticism, over the rising cost of living, and more recently, on the postponement of the local government elections owing to the “lack of adequate funds”.

However the Indian businessmen’s optimism, they say, stems from their experience of doing business in Sri Lanka for decades, in sectors spanning transportation, pharmaceuticals, cosmetics and technology. “We have seen ups and downs but where there is a problem, there is certainly an opportunity,” says Mr. Prakash, who is also the President of the Indian CEO Forum that includes leaders of nearly 70 companies.

Of those, 38 are Indian companies and the rest are multinational corporations led by Indians based in Sri Lanka. Representatives of this organised forum for Indian businesses in Sri Lanka periodically meet with the Sri Lankan authorities, at the highest levels. In the recent months, they have met the President more than once, apart from holding discussions with the Prime Minister and the Governor of the Central Bank.

Resilient Indian investors

“The standard of living in Sri Lanka is very good. Citizens have an admirable civic sense, it is a very safe country,” says Umesh Gautam, CEO, Lanka Ashok Leyland, one of the oldest Indian investments in Sri Lanka. “Our main objective is to grow with Sri Lanka, we will continue to be here no matter what. Most mature Indian investments, especially from public listed companies, have rarely shown losses in Sri Lanka. They have been very resilient.”  

According to Kishore D. Reddy, Managing Director, Platinum Realty Investments and President, Sri Lanka India Society, the nearly 70 companies in Sri Lanka that are part of the Indian CEO Forum employ about 20,000 Sri Lankans. “That’s right from the junior level to very senior level management, offering good opportunities for training and skill development. There are only a handful of Indians. And importantly, there were no layoffs during the pandemic or the crisis in any of our companies,” he says.

It is not that business was smooth for the Indian companies during the crisis, that too with the government slapping import restrictions to save foreign exchange, and amid soaring production costs. The import restrictions and the rise in costs since certainly impacted production, but the Indian investments carried on, at times with support from their parent companies in India, but mainly with a resolve to continue operations. At the height of the crisis last year, the Life Insurance Corporation of India approved an investment of LKR 600 million (roughly ₹13.20 crore) in LIC Lanka. Further, the companies undertook many CSR initiatives at the community level, the CEOs note. 

Need for structural changes

All the same, the business heads underscore the need for some structural changes in Sri Lanka to augment foreign investments, especially when the challenge of costs is so stark, following the drastic depreciation of the Sri Lankan rupee, by nearly 45 % against the US dollar in 2022. The ease of doing business must improve, they underscore, suggesting that a single window regulatory process be put in place to help save costs and time, and give incentive for new investors to come in.

“As someone engaged in businesses in Sri Lanka for decades now, I can tell you there is enormous potential for investments in the agriculture, tourism, information technology, renewable energy, and education sectors. These are low hanging fruits,” Mr. Reddy notes, inviting Indian companies to explore the sectors. Investors must remember that Sri Lanka is a country of 22 million people and small and medium investments tend to do very well over time, especially if they are consumption-oriented, rather than export-driven, the CEOs point out.

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