Colonel Anil A Athale, PhD, (Retd)

At the very roots, most internal conflicts are caused by socio-economic factors. The economic factor is not 'visible' and is seldom openly admitted, functions as a  catalyst. The civil war in Sri Lanka is no exception to this rule . It is true  that the 'Sinhala only' policy of Mr. SWRD Bandarnaike , implemented in 1956 was rooted in politics of wooing the majorrity Sinhala Budhist community to gain power. It is widely accepted as the cause of present turmoil. The  economic consequences of this policy were  reduction of  jobs for Tamils and transfering them to the Sinhalese. In a dynamic economy with high rate of growth and jobs in private sector, the impact of this measure would have been marginal. However in absecne of both these factors, frustration of Tamils spilled over into an insurgency. 

Under the socialistic pattern economy , as in India, the government occupied the centre stage. Economic as well as political power got concentrated in the small Sinhala elite in Colombo. While the `Sinhala only' language policy was implemented for the masses, English education continued to be the monopoly of the elite. Sri Lanka has therefore been seeing major upheavals also amongst the majority Sinhalese. The 1971 uprising and more recent 1987 uprising by the Janata Vimukti Perumana (JVP) were manifestations of this basic malady.  
At the present moment all attention is concentrated on the fight against the Tamils of Jaffna. But it is to be expected that once this conflicts reduces in intensity, the restive Sinhalese youth, unemployed and frustrated are likely to rise against the stranglehold of the narrow elite that rules Sri Lanka.   

Sri Lanka is predominantly an agricultural economy. Manufacturing contributes only 20 % to the GNP. That too is concentrated in the garment industry where cotton yarn and fabrics are imported. Tea and Rubber are the two other important products. But even here the exports are based  on sending out raw commodities and there is very little value addition. As a consequence unemployment is on the rise. Due to unsettled conditions the latest statistics are not available but the trends towards rising unemployment is unmistakable.  

     UNEMPLOYMENT.(IN 000s) 
1953  1961  1962  1963  1964  1965  1966  1967  1968  1969 
 32.6    151    150    152    159    181    224    249    265    306 
1970  1971  1972  1973  1974  1975  1976  1977   
  381    419    440    457    489    512    547    572  
(Source: UN Statistical Year Book 1975, p. 83 and p. 104 and Year book 1979-80 p. 79 ) 

According to the UNCTAD VIII report published in 1992 , Sri Lanka enjoys one of the highest qulity of life in the third world and many of the indicators are comparable with the developed world. Infant mortality is 28 per 1000 births and life expectancy is at a high of 71.6 years. This is the same as in advanced countries like the US and UK.  Calories avialable per capita is at 2319 per diem and 41 % of the population has access to safe drinking water. Primary education is 100 % for male children and 93 % for females. Literacy is 89 %.  

The key to Sri Lankan success in achieving this quality of life is to be found in the control of population growth. The rate of population growth that was 2.4 in the years 1963-69 , reduced to 2.3 % per annum for 1970 -74 and has continued to decline to 1.4 in the years 1985-90. Currently it is stable at this figure. The decline in growth rate is quite dramatic and if one is to take into account the increasing life expectancy , then it appeares that Sri Lanka has already reached zero rate of growth .  
       (population in million) 
   1953         1956       1959      1963       1969     1975     1980       1986    
  8.097        8.929      9.612   10.646    12.240  13.514   14.747   16.117  
   1990     1994 
 16.993    17.9 

Rate of growth has stabilized at 1.4 % per annum. 
(Source UN Statistical Year Books 1957,1975,1985,1990) 

In the UNCTAD report fertilizer consumption  per acre for Sri Lanka is at 111 kgs per acre. But most of  this is used in the tea plantations and the staple food rice is neglected. The figures available for the early 50s show a dependency to the extent of over 45 % on imported food. Rice is mainly imported from Thailand.  
Sri Lanka is the largest exporter of black tea in the world acounting for nearly 22 % of the total. Tea is also the second largest foreign exchange earner after garments. But if one is to discount the import content in the garment trade then tea becomes the most important commodity as far as export earnings are concerned. The production of tea has however reached a plateaue and any FURTHER GROWTH IN PRODUCTION AND EMPLOMENT IN THIS SECTOR IS SEVERLY LIMITED. The following figures show this very clearly.  
        (in 000 kgs ) 

1934-38  1948  1950  1952  1954  1956  1958  1960  1962   1964  
   103.9     135    138     143    166    170    187    191    211    218 
1966   1968   1975   1977  1979  1981  1983  1985  1987  1989   1991 
 222      224     213     199    206   210     180    215    213    207     241 

(Source UN Staitsitical Year Books 1957,1975, 1979-80, 1985-86 and 1990-91.) 

Tea prices in the international market have a tendency to fluctuate. These reached the peak of $ 350 per tonne in 1983-84  
but declined to 150-200 $ in 1985-90 and have remained virtually static at these levels. Accounting for the inflation, the prices have actually declined in real terms over the years. Sri Lankan economy has been badly affected by this twin factors of static prices and production.  

Natural rubber and rubber products form another major part of the plantation economy. Like elsewhere in SE Asia, the labour working in these plantations is mostly of Indian origin, largely from the southern state of Tamilnadu. The historical reason for this phenomenon being that in the early 19th century when the British were establishing their plantations world wide, it was the Tamil speaking area over which they had full control. The conditions of the early workers was no better than that of the slaves. Many people however took this up voluntarily so as to escape grinding poverty at home.  

Sri Lanka boasts some of the best quality of life indicators in the third world. But the steady rise in unemployment and lack of industrialization is apparent from both the sectoral composition of the economy as well as import and export trade. Seen from this point of view, it is quite clear that the growth in Sri Lankan economy has been slower as compared to countries like India where despite double the growth rate of population, availability of goods has shown an increase. In case the Sri Lankan economy was to grow at comparable rates it should have by now solved the problems of poverty.  

Economic stagnation is a powerful impetus for violence , be it the Sinhala extremism or Tamil separatism. Even this limited growth has occured in sectors like tourism and service sectors where the benefits have reached only a small number. The key to this stagnation is the neglect of agriculture and horticulture. Long term figures for rice production show this very clearly.  
       (in 000 tonnes ) 
1934-38   1948   1951  1952  1954  1956  1958  1960  1962  1964 
340            -         507   603    649    561    763     897   1003  1054 
1966  1968   1970 1972   1974   1976   1978   1980    1982 
955    1347   1616 1313   1603   1253   1890   2383    2156 
1984   1986  1988  1990   1991 
2414  2588  2477   2538   2397 
(Source: UN Statistical Reports, UNCTAD and FAO Year Books.) 

Sri Lanka is a major importer of wheat, milk products and vegetables. The cold staistics hides the reality of Potatos selling at Rs 50 a kg and milk powder at Rs 168 per kg. Fruit like apples are imported from faraway NewZealand and cost Rs 25 per piece.  

Under President J. R. Jaywardane, Sri Lanka was one of the first country in the Indian subcontinent to throw open its doors to the multinationals. Sri Lanka hoped to thereby emulate the example of the city states like Singapore and move on the fast growth track. The establishment of export promotion zone near Colombo airport was the first step to make the Lanakn capital another Hongkong. The main investment in this zone has been in the low technology and low priced manufacture, the Asian version of the 'Sweat Shops" of the early era of industrial revolution.  

The multinationals who came in the country soon devoured most local companies, so much so that it is difficult find a Lankan brand name in the market. At early  stage of liberalisation, the multi nationals sold at low prices and some times even at a loss. But once having established their monopoly, the prices have been jacked up and are beyond the means of most ordinary Lankans. The elites were kept happy by providing them with highly paid jobs, very few in number. The fact that both economic and political power is concentrated in the hands of narrow elite helped the matter.  

Example of 'Nestle' in the area of milk products is reprresentative of the trend. This company was more interested in selling the surplus milk products from Europe and other advanced countries and hence took virtually no interest whatsoever to develop the milk production in Lanka.   


The civil strife between the Sinhalese and Tamils has had both direct and indirect effect on the economy. Rising burden of defence related expenditure and general slow down of the economy are the indirect effects. But the two main sectors that have suffered are fisheries and tourism. 

Sri Lanka was a favoured tourist destination due to its lovely sun soaked beaches as well as breath taking Budhist monuments. The long term trends in tourist trade show clearly the effect of internal disturbances on the tourist trade.        

1975  1976  1977  1978  1983  1984 
(A) TOURIST ARRIVALS 103   119  153  192  345   327   (IN 000s)
(B) EARNINGS  22   28  40   56  127  105 (in million US $)
1985  1986    1987  1988 1989  1990
(A) 267  230    183  183  185  298
(B)  74  75      82  77     76   125


The drop in tourist arrivals after 1983, the year in which Sri Lanka faced major riots clearly shows the effect of the unrest on tourist earnings. The trend after 1990s show that while the tourist arrivals have picked up, the 'big spender' tourists are avoiding Lanka. Also most tourists are 'transit' tourist on their way to Male.  

After agriculture and plantations, fisheries are the third most important economic activity in terms of value as well as employment. The best areas for shrimps and prawns are in the north and east and this activity is largely dominated by the Tamils and Muslims.  

    (IN 000 TONNES ) 

1959 1960 1961 1962 1963 1964 1970 1971 1972 1973  1974 1975 
  48     58     74     84     93     96     98     85    101   100    110   124 
1976   1977   1978 
135.9  138    156.6 
      (Source : UN Annual Reports, ESCAP Reports and       UNCTAD Report) 
Ever since the civil war in Sri Lanka has intensified, nearly 2/3 of the countries coastline is under the control of Tamil militants. Figures for the later period are therfore not reliable. There exists huge untapped potential in fisheries. 

Sri Lanka is sitting on a volcano that can erupt any moment. The disaffected Sinhalese are currently peaceful as most support the Govt measures against the Tamil separatism and are prepared to undergo hardships for that sake. The Lankans are spending close to Rs 500 million or 40 % of national budget on defence. With mounting external debt , Lanka cannot bear the burden much longer. But end of the military campaign against LTTE is unlikely to lead to peace as the Sinhalese discontentment dormant so far, will then spill over into the streets as it happened in 1971 and 1987.  
The results of an opinion polls carried out in 1994 and 95 bring out the factor of economic distress and dis-satisfaction.   


APR 1994   JULY 1994  MAR 1995  JUNE 1995  AUG 1995 
     60                  61               47                 67                72 
      (Source: Research International, Aug 1995 , Colombo.The sample survey covered all districts except  PROVINCE of JAFFNA  AND BATTICALOA)  

A full 70 % people were also opposed to the policy of privatisation. The results were based on a sample 2500 strong with proportional representation for all occupations and age groups. 

The dis-satisfation with economic situation is nor surprising.Out of a total population of 17.9 million , nearly 7 million or 38 % of the population lives in absolute poverty. Most of these poor are in rural areas, 6.3 million. Unemployment is officailly estimated at 14 % but may be as high as 35 to 40 % if under employment is included. The pattern of income growth since 1980s liberalization shows a marked bias in favour of mercantile and services sectors, essentially 'rent seeking'.  
     INCOME DISTRIBUTION TRENDS      (percentage share of the GNP) 
                  TOP 10% HOUSEHOLDS   BOTTOM 40% HOUSEHOLDS 

1973                                  28 %                          19 % 
1987                                  39 %                          14 % 
(Source: US Aid, Annual Report 1995, p.7) 

Unemployment is mainly amongst the young, Sinhala language educated Budhist  youth in the South. This is the recruiting ground for the Sinhalese extremist JVP party.  
The current President Ms Kumartunga appears to be aware of the dire economic situation and also of the  need to pay attention to agriculture and horticulture as means to raise the standard of living of the masses. Sri Lanakns do expect Indian help in these fields and would  welcome it.  


Many of the economic problems of Sri Lanka are directly related to its allergy to trade with India. Many Indian products like the Bajaj Three Wheeler , are ideally suited for their requirements. These have been heavily taxed, ( a Bajaj three wheeler cost upwards of Rs 1. 25 lakhs)so is the marked reluctance , so far to turn to India for relevant technology. The causes of this self destructive policy lie in the domanin of politics, only its economic consequence  is mentioned here.   

Sri Lanka is a small country with excellent communications. It has also cent percent literacy. This makes for a volatile situation when combined with economic dis-satisfaction and affects the stability of the state. In addition is the crucial fact that despite the demcratic form of govt , over the years a narrow elite has emerged in whom the political and economic power is concentrated. Change of parties has only meant change of a group of ruling elite or  change of ruling family.  Even if the civil war between Sinhala and Tamil can be ended, peace will continue to elude Sri Lanka unless that country undertakes a programme of basic socio economic reforms.