Fuel shortages in crisis-hit Sri Lanka could result in the diversion of shipping activities towards India from Colombo - a major transhipment hub for South Asia, rating agency Crisil said on Monday.

Amid a severe shortage of essentials such as food and fuel in Sri Lanka, India last week sent two fuel consignments carrying 36,000 tonnes of petrol and 40,000 tonnes of diesel, taking the total fuel shipments to the neighbouring country to 270,000 tonnes.

Meanwhile, the shortages have caused frequent blackouts and the country continues to grapple with the worst financial crisis since 1948. Residential as well as industrial areas are facing 10-12 hour long power cuts disrupting everyday life.

“Colombo is a major transhipment hub for South Asia, including India, because of its natural locational advantage and competitive pricing. But because of fuel shortage in the country, these services could be diverted to other ports such as those in India," Crisil said in a report. 

Ports in India, particularly those on the eastern and southern coasts of India are expected to see some benefit from the diversion of transhipment and other shipping activities from Colombo, the report further said.

The ongoing economic crisis in Sri Lanka, lead to sovereign default on all external debt. The crisis intensified in the island nation after the Covid-19 pandemic began, which crippled tourism, its largest forex earning sector.

Ports in India, particularly those on the eastern and southern coasts of India are expected to see some benefit from the diversion of transhipment and other shipping activities from Colombo, the report further said.

The ongoing economic crisis in Sri Lanka, lead to sovereign default on all external debt. The crisis intensified in the island nation after the Covid-19 pandemic began, which crippled tourism, its largest forex earning sector.

A sudden ban on the use of chemical fertilisers last year led to food shortages. Even though the ban was lifted later, the damage was proved to be irreversible. The Sri Lankan rupee, which was valued at 195 per US dollar in April 2021, depreciated sharply and currently hovers around 325 per dollar.

For the 11 months ended fiscal 2022, India’s exports to, and imports from, Sri Lanka totalled $5.9 billion, or just 0.64% of India’s total trade. Exports to Sri Lanka, at $5 billion, account for 1.3% of India’s total exports. These levels have remained rangebound in the past three fiscals.

Source: Live Mint