Sri Lanka's Economic Crisis.

The economic crisis in Sri Lanka has worsened to the extent that a couple of weeks back, people took on the presidential palace and left president Gotabaya Rajapaksa with no choice but to flee and resign. He fled the country and emailed his resignation to the speaker, and on July 21 Ranil Wickremesinghe, who was serving as a prime minister, was elected the new president. Against this backdrop, the question of why Sri Lanka is going through this crisis has become all the more important. Let's see how Sri Lanka reached this juncture, where it is on the verge of economic and political breakdown.

The crisis has been in the making for a long time. For starters, the policies of Gotabaya and the pandemic are largely responsible for this crisis. The Sri Lankan president had won the elections with the narrative that once he assumed power, he would cut the Value Added Tax (VAT). And when he made it, he slashed it by 50 percent, which became 7.5 percent against the previous 15 percent. He believed that by reducing the tax rate, he would encourage more consumption which, in turn, would lead to economic growth.

No doubt, reducing tax rates has worked on several occasions and in many countries. But for Gotabaya's Sri Lanka, fortune appeared to be on the other side as his decision proved to be disastrous. As soon as he implemented his new policy, Covid-19 broke out. Like every affected country, Sri Lanka imposed a lockdown in the country to contain the virus. Lockdowns do help in controlling pandemics, but they almost mean death to the economy. So this took a heavy toll on consumption. As a result, economic consumption did not grow.

Next, Gotabaya had been playing with the idea of organic farming. He had a vision of making agriculture 100 pdf cent organic over the course of 10 years. But for unknown reasons, Gotabaya all of a sudden announced that Sri Lanka would become a country with 100 percent organic agriculture. He believed that by doing this he would save 400 million dollars which he spends on fertiliser and pesticide imports.

As is well-known, organic farming produces a much lower yield than farming which makes use of inorganic substances, Sri Lanka's...