Why The US Wants To Fund Adani Group's Sri Lanka Project

The Adani Group is reportedly set to receive massive funding from the US for a port project in Sri Lanka as the world’s largest economy looks to blunt China’s growing influence in the region.

What Happened: The US is set to provide $553 million (₹4,604 crore) in financing for a significant port terminal project in Colombo, Sri Lanka, led by Indian billionaire Gautam Adani, Bloomberg reported. This collaboration between the US, India and Sri Lanka is likely part of a broader strategy to counterbalance China’s influence in the South Asian region.

The funding will be directed towards the West Container Terminal, a deepwater port facility in Colombo, and is being extended by the International Development Finance Corp (DFC). Notably, this represents the DFC’s most substantial infrastructure investment in Asia and one of its largest worldwide. The initiative aims to bolster Sri Lanka’s economic growth and enhance its regional economic integration, particularly with India.

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Why It Matters: The US’ involvement also reflects an effort to reduce China’s sway over Sri Lanka, which accumulated significant debt following investments in Chinese port and highway projects. Simultaneously, India seeks to shift the balance of influence in its neighborhood.

DFC’s investments have been accelerating globally, with a total of $9.3 billion (₹77,439 crore) in 2023. This financial backing for the Sri Lanka port underscores the US’ commitment to becoming more involved in development projects across the Indo-Pacific.

As of the end of the previous year, China had invested about $2.2 billion (₹18,319 crore) in Sri Lanka, making it the nation’s largest foreign direct investor. The US has publicly criticized China’s role in Sri Lanka, particularly its involvement in the underutilized Hambantota port, which the U.S. characterizes as part of China’s “debt-trap diplomacy.”

DFC will collaborate with project sponsors John Keells Holdings and Adani Ports & Special Economic Zone, drawing on their local expertise and commitment to high-quality standards.

For Adani Group, which holds a majority stake in the port project and has faced corporate fraud allegations, this U.S. funding serves as an endorsement. The conglomerate has persistently refuted these claims and defended the investments, asserting that they meet Sri Lanka’s requirements.

DFC, founded under the Trump administration as a development finance agency, operates to support developing nations while furthering U.S. foreign policy objectives. Despite its initial challenges posed by the COVID-19 pandemic, the agency has accelerated its funding efforts, contributing to closing the development spending gap with respect to China’s high-profile Belt and Road Initiative.

Price Action: Adani Ports’ share price had climbed 2.33% to ₹816 just ahead of noon on Wednesday.

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