PRACTICUM OF ECONOMY

(1950s – 2025)
 ECONOMY OF SRILANKA
INTRODUCTION

Upon gaining independence in 1948, Sri Lanka entered a new era with
great expectations for economic success. The country was uniquely
positioned with several early advantages that distinguished it from many
of its Asian counterparts. Its strategic location in the Indian Ocean
provided significant geopolitical and trade benefits. The economy was
open and export-driven, with a strong foundation in key industries. Sri
Lanka also boasted a relatively high literacy rate and a well-established
education system, alongside a robust physical infrastructure.
Additionally, the nation had a competent and largely local administrative
framework in place.
At the time of independence, Sri Lanka enjoyed a stable balance of
payments, backed by substantial foreign exchange reserves and a sound
fiscal position. It was ‘an oasis of stability, peace and order, set against
the contemporary catastrophes in the rest of the British possessions in
the region’. It was “Britain’s model commonwealth country, carefully
prepared for independence” . These initial conditions justified the
expectation that Sri Lanka would prove ‘the best bet among all post-
colonial nations in Asia’.
At the time of independence, and well into the 1950s, Sri Lanka ranked
as one of the most prosperous Asian countries, with per capita income
and other development indicators placing it well above its South Asian
neighbours and even much ahead of countries, such as Thailand, South
Korea, and Taiwan in East Asia.

Sri Lanka’s standards of living, measured by indicators, such as adult

literacy, life expectancy, infant mortality, remained well above those of
other developing countries. During the ensuing seven decades, the growth
of Sri Lanka’s per capita income fell way behind the fast-growing East
Asian economies, rapidly converging to the levels of its South Asian
neighbours. From the late 1960s even the vaunted basic need
achievements had become relatively less impressive through time.

Given the failure to find a way to make the economy grow fast enough to
sustain social progress, Sri Lanka has become a vivid illustration of the
limitations of direct approach to problems of social equity: ‘a tale of
missed opportunities’. Eventually the country ended up in an
unprecedented sovereign debt crisis that culminated in April 2022.

HISTORY OF ECONOMIC CONDITION OF SRILANKA

1948 – Independence and Early Prosperity:
Sri Lanka gained independence from British rule in 1948 with a relatively strong economic
foundation. The country had a well-developed infrastructure, a high literacy rate, and a
robust export sector focused on tea, rubber, and coconut. Its strategic location in the Indian
Ocean and stable administrative systems positioned it as a promising economy in South Asia.
1950s – 1960s: Welfare State and Slow Growth:
During this period, Sri Lanka adopted a welfare-state model, prioritizing free education,
healthcare, and food subsidies. While these policies improved human development
indicators like literacy and life expectancy, economic growth remained sluggish. The focus
on social welfare led to budget deficits and limited investment in industrialization.
1977 – Economic Liberalization:
In 1977, Sri Lanka shifted from a closed, state-controlled economy to an open, market-
oriented one under President J.R. Jayewardene. The government introduced reforms to
attract foreign investment, privatize state-owned enterprises, and boost exports. This period
saw significant growth in industries like textiles and apparel, as well as infrastructure
development.
1983 – 2009: Civil War and Economic Strain:
The onset of the civil war in 1983 severely impacted the economy. Resources were diverted
to military spending, and tourism and foreign investment declined. Despite these challenges,
the economy grew moderately, supported by remittances from overseas workers and
export-oriented industries.
2009 – Post-War Recovery:
The end of the civil war in 2009 brought renewed optimism. The government focused on
rebuilding infrastructure, attracting foreign investment, and promoting tourism. GDP
growth averaged around 6% annually in the early post-war years, driven by construction,
services, and exports.
2010s – Debt and Infrastructure Projects:
Sri Lanka embarked on ambitious infrastructure projects, including ports, highways, and
airports, financed largely through foreign loans. While these projects modernized the
economy, they also led to a significant increase in public debt. By the mid-2010s, concerns
over debt sustainability began to emerge.
2019 – 2022: Economic Crisis:
The Easter Sunday attacks in 2019 severely impacted tourism, a key revenue source. The
COVID-19 pandemic further exacerbated economic challenges, disrupting trade, tourism,
and remittances. In 2022, Sri Lanka faced its worst economic crisis since independence, with
soaring inflation, depleted foreign reserves, and a default on foreign debt. Protests over fuel
and food shortages led to political instability.

2023 :
Sri Lanka was undergoing economic stabilization with assistance from the International
Monetary Fund (IMF). Austerity measures, tax reforms, and efforts to restructure debt were
underway. While the economy showed signs of gradual recovery, challenges such as high
inflation, unemployment, and poverty persist. The government is focusing on rebuilding
investor confidence and promoting sustainable growth.

Policy Context: A Historical Perspective

Sri Lanka inherited from the colonial past a classical export economy with a system
of government, which could already lay claim to being a welfare state . The economy
was heavily dependent on three agricultural export commodities (tea, rubber, and
coconut), which directly contributed to nearly a third of the GDP. In addition to its
direct contribution to the economy, a host of activities in the services sector
depended on the plantation sector. Export earnings from the three crops covered over
95% of the country’s imports which accounted for over three-fourth of the total
domestic absorption of goods. The period of political transition from colonialism to
self-rule in the three decades leading up to independence saw the introduction and
gradual expansion of a wide range of welfare measures, including subsidized food,
free education from primary through to the university level, free medical care, and
subsidized public transportation. During the colonial era, the thriving export
industries generated ample surpluses for the state to finance these schemes.
The colonial welfare orientation became the precursor of an extensive welfare
system in the post-independence period as the government passed into the hands of
leaders with popular mandates. A population boom that began in the late 1940s
following a highly successful malaria eradication campaign added to the pressure to
widen and deepen the welfare state. The rapid expansion of the welfare state
occurred against the backdrop of gradually diminishing fortunes of the traditional
export industries because of both supply-side and demand-side reasons. The
successive governments of independents Sri Lanka largely failed to match the
welfare orientation with a coherent strategy to find new sources of growth through
structural diversification of the economy, refurbishing existing export industries, or
diversifying into new areas in either agriculture or industry.
In the first decade of independence, policymakers perceived periodic export
shortfalls as a cyclical phenomenon and maintained the status quo of the colonial
economy by financing balance of payments deficits with foreign exchange reserves
accumulated during the boom years. There was no coherent strategy to restructure
the economy other than continuing a colonization scheme in the dry zone, which
specifically focused on expanding paddy cultivation.
From the late 1950s, a combination of change in political leadership and balance-of-
payments difficulties led to the adoption of a state-led import-substitution
industrialization strategy. By the mid-1970s, the Sri Lankan economy was one of the
most inward-oriented and regulated economies outside the communist bloc, with
pervasive state interventions in all areas of economic activity. Widespread
nationalization measures, coupled with various economic controls, had effectively
marginalized the private sector in the economy. The policy stance during this period
vividly demonstrated that a small country was not able to achieve self-sustained
growth through the import-substitution development strategy, given the obvious
limit to economic expansion within its national boundaries.
In 1977 Sri Lanka embarked on an extensive economic liberalization process that
marked a decisive break with decades of protectionist policies. The reforms,
implemented in two stages (during 1977–1980 and in the early 1990s), included
lifting almost all quantitative import restrictions and substantially reducing tariffs,
opening the economy to foreign direct investment (FDI) and abolishing export duties.
The reform process was, however, incomplete in terms of the standard prerequisites
for a market-oriented economy . First, most state-owned enterprises (SOEs) set up
during the preceding three decades continued to operate with heavy dependence on
budgetary transfers. Second, the promised reforms to achieve greater labour market
flexibility were abandoned in face of widespread opposition by the trade unions.
Third, and perhaps more importantly, the complementarity between macroeconomic
management and trade liberalization required for maintaining the competitiveness
of ‘tradable production’, i.e., production of exportable and import-competing goods
and services, which are capable of being traded among countries, was missing in the
liberalized economy. The dual exchange rate system, which had been in operation
since 1968, was abolished and the new unified exchange rate was allowed to adjust
in response to foreign exchange market conditions. However, from about 1979, the
Central Bank began to deviate gradually from the original plan and to intervene in
the foreign exchange market to use the nominal exchange rate as an ‘anchor’ to
contain domestic inflation. The policy emphasis on fiscal prudence, too, was short-
lived because the government embarked on a massive public investment programme
side by side with opening the economy. Consequently, the real exchange rate (RER)
appreciated, eroding competitiveness of tradable production in the economy.
Reaping gains from liberalization reforms was also seriously hampered by the
escalation of the ethnic conflict from the early 1980s . The conflict virtually cut off
the Northern Province and large parts of the Eastern Province, which together
account for one-third of Sri Lanka’s total land area and almost 12% of the population,
from the national economy. Even in the rest of the country, the lingering fear of
sporadic attacks by the Tamil militants hampered the prospects for attracting foreign
investment, particularly in long-term ventures. Nonetheless, the economy continued
to be burdened by the massive military expenditure and its consequences for
macroeconomic instability.2 The government’s preoccupation with the civil war also
caused delays and inconsistencies in the implementation of reforms.
Despite incomplete reforms and civil conflict, Sri Lanka's economic landscape
transformed, laying a strong foundation for outward-oriented policies into the early
2000s. By the mid-1990s, it was one of the few developing nations to shift from an
inward-focused model to global economic integration.
From the late 1990s, reforms stalled due to reliance on import tariffs and surcharges
to fund the escalating war budget. Protectionism grew amid economic crises and
public discontent. Critics blamed liberalization for failing to match East Asia's
growth, overlooking the impact of incomplete reforms and the prolonged civil war.
The end of the civil war in 2009 marked a shift in Sri Lanka's economic policy.
The government moved away from market-oriented reforms, favoring state
intervention to guide markets. This led to protectionist measures like import tariffs
to protect domestic industries. Infrastructure development and support for SMEs
became key priorities, fueled by China's Belt and Road Initiative. While rapid
growth occurred initially, driven by massive infrastructure investment, it slowed
down after 2013 as projects were completed and debt repayment pressures mounted.
By the time of the political regime shift in early 2015, the dark clouds of the
economic storm were already gathering on the horizon. In 2016, the new government
entered a four-year Extended Fund Facility (EFF) programme with the IMF, with a
reform programme specifically focussed on f iscal consolidation (Coomaraswamy
2017). The revenue-enhancing fiscal consolidation reforms under this programme
managed to reverse the dwindling tax-revenue to GDP ratio in the economy and
achieve a modest surplus during 2018–2019 in the primary balance of the budget
after several decades. The implementation of the programme abruptly terminated
with the regime change in 2019, and the policy pendulum begun to shift in favour of
‘guiding the markets’ by the state (CBSL 2020).
 Indicators of Economic Conditions in Sri Lanka
1. Gross Domestic Product (GDP)

• Definition: Total value of goods and services produced in a country over a specific
period.

GDP growth (annual %) - Sri Lanka

The graph represents Sri Lanka's GDP growth rate (%) from 1961 to 2023.
Unlike the previous graph, which showed a steady increase in absolute GDP, this
one depicts the annual percentage growth rate, highlighting fluctuations over
different periods.

Key Observations from the Graph:

1. Early Years (1960s-1980s):

a. The growth rate was relatively high in the 1960s, with peaks above 6%.
b. However, there were sharp downturns in the 1970s and early 1980s,
likely due to political instability, policy changes, and global economic
conditions.
2. Mid to Late 1980s:
a. The growth rate became more volatile, with alternating spikes and
declines.
b. The drop in the late 1980s could be due to the Sri Lankan Civil War
(1983-2009), which disrupted economic stability.
3. 1990s-2000s (Gradual Recovery & Fluctuations):
a. The economy showed signs of recovery, with moderate but unstable
growth.
b. Several peaks and declines suggest external shocks (like the Asian
financial crisis in 1997).
c. The sharp decline around 2001 could be linked to both domestic and
global economic slowdowns.
4. Post-War Economic Growth (2010s):
a. After the end of the Sri Lankan Civil War in 2009, the GDP growth
rate showed some stability, often staying between 3-6%.
b. Despite this, certain downturns indicate policy changes, global
economic crises, and trade disruptions.
5. Recent Years (2020s - COVID-19 Impact):
a. A sharp dip below -3% around 2020 suggests the impact of the
COVID-19 pandemic, which led to a global economic slowdown.
b. This was followed by a sharp spike in 2021, indicating a post-
pandemic recovery.
 c. However, a decline afterward reflects economic challenges such as the
financial crisis in Sri Lanka (2022-2023), high inflation, and foreign
exchange issues.

Conclusion:

The graph shows that Sri Lanka has experienced periods of rapid growth,
economic crises, and recoveries. While the overall trend has been positive, external
shocks, policy decisions, and internal conflicts have played a major role in
fluctuations.
 GDP (CONSTANT 2015 US $)

The graph shows the constant growth of GDP of Sri Lanka from 1961 to 2023. It
follows an upward trend, indicating a steady increase in the country's Gross
Domestic Product (GDP) over the years. The growth appears relatively smooth
and consistent, with some fluctuations, particularly around the early 2000s and after
2010.

A key highlight in the graph is the year 2015, where Sri Lanka’s GDP is marked at
75.47 trillion. This suggests a significant milestone in economic expansion, likely
influenced by post-war economic recovery, increased foreign investment, and
infrastructure development.

GDP (CURRENT US$)

GDP (current US$)

The graph represents Sri Lanka’s GDP growth from 1961 to 2023, showing a
steady upward trend in the country’s overall economic output. The increase in
GDP over the years highlights Sri Lanka’s economic expansion, industrialization,
and development policies.
Key Observations from the Graph:

1. Early Growth (1960s - 1980s):

a. The GDP was relatively low in the 1960s, with slow but steady growth.
b. During the 1970s, growth started to accelerate as the country moved
towards economic liberalization.
c. The 1980s saw moderate growth, despite challenges like political
instability and global economic shifts.
2. Period of Fluctuations (1990s - Early 2000s):
a. The GDP growth became more visible in the 1990s, with a few
plateaus, indicating periods of slow growth.
b. The Sri Lankan Civil War (1983-2009) impacted the economy, leading
to fluctuations during this period.
c. Despite challenges, investments in infrastructure, trade, and services
contributed to GDP expansion.
3. Post-War Economic Boom (2010s):
a. After the end of the Civil War in 2009, Sri Lanka experienced rapid
economic growth.
b. The country saw a significant increase in GDP, driven by foreign
investments, tourism, infrastructure development, and trade.
c. This period shows a sharp rise in the graph, indicating a strong
recovery.
4. Impact of Global Events (2020s):
a. Around 2020, the graph shows a dip, which corresponds to the
COVID-19 pandemic, causing a slowdown in the global and local
economy.
b. Following the pandemic, there is a sharp rebound, reflecting
economic recovery efforts.
c. In 2022-2023, Sri Lanka faced an economic crisis, including high
inflation, debt crisis, and currency devaluation, which may have
affected GDP growth.
Conclusion:

The graph indicates that Sri Lanka’s GDP has shown long-term positive growth,
despite periodic setbacks due to war, policy changes, and global crises. The
economy’s ability to recover from downturns and continue growing highlights its
resilience and potential for future expansion.

The GDP Growth Rate measures how much a country’s Gross Domestic Product
(GDP) increases or decreases over a specific period, usually a year. It is expressed
as a percentage and indicates the overall health of the economy. A positive growth
rate shows economic expansion, while a negative growth rate signals contraction.

Example: Sri Lanka's GDP Growth

• From 1960 to 2019, Sri Lanka’s GDP grew at an average annual rate of
4.8%, indicating steady economic progress over the long term.
• However, in 2020, GDP contracted by -3.6%, meaning the economy shrank
instead of growing.

INFLATION RATE
Inflation Rate

Sri Lanka's inflation rates have experienced significant fluctuations since gaining
independence in 1948. Below is a decade-wise overview highlighting key trends and notable
peaks:

1960s:

• 1960: -1.54%
• 1969: 7.46%

1970s:
 • 1974: 12.30%
• 1978: 12.14%

1980s:

• 1980: 26.15% (highest in the decade)

• 1984: 16.64%

1990s:

• 1990: 21.50%
• 1996: 15.94%

2000s:

• 2001: 14.16%
• 2008: 22.56%

2010s:

• 2012: 7.54%
• 2017: 7.70%

2020s:

• 2022: 49.72% (highest recorded rate)

• 2023: 16.54%

These figures illustrate periods of both stability and volatility in Sri Lanka's economic history,
with notable peaks in 1980 and 2022.
Inflation, GDP deflator (annual %) - Sri Lanka

Key Periods & Observations:

• Early Years (1960s-1970s): Inflation rates show moderate fluctuations, potentially

reflecting early economic policies and external factors.
• 1970s-1980s Volatility: Increased volatility during this period could be attributed
to policy changes, political instability, and the impact of the open economy reforms
introduced in 1977.
• 1980s-1990s Continued Fluctuations: The graph shows ongoing fluctuations,
likely influenced by the civil war, which began in 1983, and its economic
consequences.
• 2000s Relative Stability: A period of relative stability appears in the early to mid-
2000s, possibly reflecting a period of economic growth and post-conflict recovery
efforts.
• 2010s Increase in Volatility: Volatility increases again in the 2010s, suggesting
emerging economic challenges and potential policy missteps.
 • 2020s Crisis: The sudden and extreme spike in inflation in the 2020s reflects the
severe economic crisis Sri Lanka faced, marked by debt defaults, shortages, and
political turmoil.

In summary, the graph highlights the volatility and challenges faced by the Sri Lankan
economy from independence to the present, culminating in a severe economic crisis in recent
years. It underscores the importance of political stability, sound economic policies, and
sustainable debt management for long-term economic growth.

UNEPLOYEMENT RATE

Unemployment Rate in Sri Lanka: Key Points (1948–2024)

• Post-Independence (1948–1960s):
o Unemployment was relatively low, around 5–6%, due to a predominantly
agricultural economy.
o The economy was stable, with limited industrialization and a small labor force
in urban areas.
• 1970s–1980s:
o Unemployment rose to 10–15% due to:
▪ Slow economic growth.
▪ Failure of import-substitution industrialization policies.
▪ Population growth outpacing job creation.
o Youth unemployment became a significant issue, with rates exceeding 20%.
• Post-Liberalization (1977–1990s):
o Economic reforms in 1977 led to a temporary reduction in unemployment,
dropping to 12% by the early 1980s.
o However, the civil war (1983–2009) disrupted economic activities, causing
unemployment to hover around 10–12%.
• 2000s (Post-Civil War):
o Unemployment declined to 5–6% by the mid-2000s due to:
▪ Growth in the services sector (tourism, IT, and finance).
▪ Expansion of the garment industry, creating jobs for women.
o Youth unemployment remained high at 15–20%.
• 2010s:
o Unemployment averaged 4–5%, with improvements in:
 ▪ Infrastructure development creating construction jobs.
▪ Growth in tourism and remittances from overseas workers.
o However, underemployment and informal sector jobs remained prevalent.
• COVID-19 Impact (2020–2021):
o Unemployment spiked to 5.5% in 2020 and 6% in 2021 due to:
▪ Collapse of tourism (a major employer).
▪ Disruptions in trade and manufacturing.
▪ Lockdowns and business closures.
• 2022 Economic Crisis:
o Unemployment rose sharply to 6.3% due to:
▪ Severe fuel and food shortages.
▪ Business shutdowns and reduced economic activity.
▪ High inflation eroding real wages.
• 2023–2024 (Post-Crisis Recovery):
o Unemployment is projected to remain around 6–7% due to:
▪ Slow recovery in tourism and exports.
▪ Limited job creation in formal sectors.
▪ Continued reliance on informal and low-productivity jobs.

Unemployment, youth total (% of total labor force ages 15-24) (modeled ILO

Explanation of the Figure (Unemployment Rate Trends)

Explanation of the Figure (Unemployment Rate Trends)

• 1992:
o World Unemployment Rate: 11.8%.
▪ Reason: Global economic slowdown post-Cold War, with many
countries transitioning to market economies.
• 2000:
o World Unemployment Rate: ~12%.
▪ Reason: Recovery from the 1997 Asian Financial Crisis, but uneven
growth across regions.
• 2005:
o World Unemployment Rate: ~11%.
 ▪ Reason: Global economic expansion, driven by growth in emerging
markets like China and India.
• 2010:
o World Unemployment Rate: ~13%.
▪ Reason: Impact of the 2008 Global Financial Crisis, leading to job
losses worldwide.
• 2015:
o World Unemployment Rate: ~12%.
▪ Reason: Gradual recovery from the financial crisis, but slow job
creation in advanced economies.
• 2020:
o World Unemployment Rate: ~14%.
▪ Reason: COVID-19 pandemic causing massive job losses due to
lockdowns and economic disruptions.

Key Observations:

• Fluctuations: Unemployment rates fluctuated between 11–14% from 1992 to 2020,

reflecting global economic cycles.
• Crisis Impact: Sharp increases in unemployment during the 2008 Financial Crisis
and 2020 COVID-19 pandemic.
• Recovery Phases: Gradual declines in unemployment during periods of global
economic growth (e.g., 2005, 2015).

This figure highlights the sensitivity of global unemployment rates to major economic shocks
and recoveries.

Balance of Payments (BoP)

Definition: Record of all economic transactions between residents of a country and the rest

of the world.

Key Points (1948–2025)

• 1948–1960s:
o BoP Position: Generally stable with small deficits.
▪ Reason: Reliance on tea, rubber, and coconut exports; limited imports
due to a closed economy.
 o Current Account Deficit (CAD): ~2–3% of GDP.
▪ Reason: Import of essential goods and machinery for development.
• 1970s:
o BoP Crisis: CAD widened to ~6% of GDP.
▪ Reason: Oil price shocks (1973, 1979) increased import costs;
declining export competitiveness.
• 1980s:
o BoP Improvement: CAD reduced to ~4% of GDP.
▪ Reason: Economic liberalization (1977) boosted exports, especially
garments and textiles.
• 1990s:
o BoP Volatility: CAD fluctuated between ~3–5% of GDP.
▪ Reason: Civil war (1983–2009) disrupted trade and investment;
reliance on remittances increased.
• 2000s:
o BoP Stability: CAD averaged ~3% of GDP.
▪ Reason: Post-liberalization export growth, tourism, and remittances
helped offset imports.
• 2010s:
o BoP Pressure: CAD widened to ~5% of GDP by 2018.
▪ Reason: Rising imports for infrastructure projects (e.g., ports,
highways) and declining export competitiveness.
• 2020:
o BoP Shock: CAD narrowed to ~1.5% of GDP.
▪ Reason: COVID-19 pandemic reduced imports (e.g., fuel, vehicles) and
increased remittances.
• 2021:
o BoP Crisis: CAD widened to ~4% of GDP.
▪ Reason: Recovery in imports outpaced exports; tourism remained
weak.
• 2022:
o BoP Collapse: CAD surged to ~6% of GDP.
▪ Reason: Economic crisis led to a collapse in tourism, remittances, and
exports; foreign reserves depleted.
• 2023:
o BoP Stabilization: CAD reduced to ~4% of GDP.
▪ Reason: IMF bailout and austerity measures improved fiscal discipline;
remittances and tourism began recovering.
• 2024–2025 (Projected):
 o BoP Recovery: CAD expected to stabilize at ~3% of GDP.
▪ Reason: Continued IMF reforms, export growth, and tourism recovery.

• 1948–1960s: CAD ~ 2–3% of GDP.

• 1970s: CAD ~ 6% of GDP.
• 1980s: CAD ~ 4% of GDP.
• 1990s: CAD ~ 3–5% of GDP.
• 2000s: CAD ~ 3% of GDP.
• 2010s: CAD ~ 5% of GDP.
• 2020: CAD ~ 1.5% of GDP.
• 2021: CAD ~ 4% of GDP.
• 2022: CAD ~ 6% of GDP.
• 2023: CAD ~ 4% of GDP.
• 2024–2025: CAD projected at ~3% of GDP.
ECONOMIC INDICATORS OF INDIA
♦ GROSS DOMESTIC PRODUCT
♦ INFLATION RATE
♦ UNEMPLOYMENT
(1960s–2025)
1. Gross Domestic Product (GDP)

• 1960s:
o GDP Growth: ~3–4% annually.
▪ Cause: Focus on agriculture and heavy industries under the Five-Year
Plans; limited industrialization.
• 1970s:
o GDP Growth: ~3% annually.
▪ Cause: Oil shocks (1973, 1979), poor monsoon seasons, and
inefficiencies in the planned economy.
• 1980s:
o GDP Growth: ~5% annually.
▪ Cause: Economic reforms began, with a focus on liberalizing certain
sectors and improving productivity.
• 1990s:
o GDP Growth: ~6% annually.
▪ Cause: Economic liberalization (1991) opened markets, attracted
foreign investment, and boosted exports.
• 2000s:
o GDP Growth: ~7–8% annually.
▪ Cause: Rapid growth in IT, services, and manufacturing; globalization
and increased foreign investment.
• 2010s:
o GDP Growth: ~6–7% annually.
▪ Cause: Global financial crisis (2008) slowed growth initially, but
recovery was driven by domestic demand and reforms.
• 2020:
 o GDP Growth: -6.6%.
▪ Cause: COVID-19 pandemic led to lockdowns, disrupting economic
activities.
• 2021–2022:
o GDP Growth: ~8–9%.
▪ Cause: Post-pandemic recovery, pent-up demand, and government
stimulus.
• 2023–2025 (Projected):
o GDP Growth: ~6–7% annually.
▪ Cause: Continued reforms, infrastructure development, and digital
economy growth.

2. Inflation Rate

• 1960s:
o Inflation Rate: ~6–7% annually.
▪ Cause: High government spending on development projects and food
shortages.
• 1970s:
o Inflation Rate: ~10–12% annually.
▪ Cause: Oil price shocks, poor agricultural output, and fiscal deficits.
• 1980s:
o Inflation Rate: ~8–9% annually.
▪ Cause: Rising oil prices and increased government borrowing.
• 1990s:
o Inflation Rate: ~7–8% annually.
▪ Cause: Economic reforms stabilized prices, but fiscal deficits persisted.
• 2000s:
o Inflation Rate: ~5–6% annually.
▪ Cause: Improved monetary policy and supply-side reforms.
• 2010s:
o Inflation Rate: ~4–6% annually.
▪ Cause: Effective monetary policy by the Reserve Bank of India (RBI)
and stable food prices.
• 2020:
o Inflation Rate: ~6%.
▪ Cause: Supply chain disruptions due to COVID-19 lockdowns.
• 2021–2022:
 o Inflation Rate: ~5–6%.
▪ Cause: Rising fuel and food prices post-pandemic.
• 2023–2025 (Projected):
o Inflation Rate: ~4–5% annually.
▪ Cause: Stable monetary policy and improved supply chains.

3. Unemployment Rate

• 1960s:
o Unemployment Rate: ~2–3%.
▪ Cause: Predominantly agrarian economy with limited formal job
creation.
• 1970s:
o Unemployment Rate: ~3–4%.
▪ Cause: Slow industrial growth and population increase.
• 1980s:
o Unemployment Rate: ~4–5%.
▪ Cause: Limited job creation in the formal sector; growth in informal
jobs.
• 1990s:
o Unemployment Rate: ~5–6%.
▪ Cause: Economic reforms led to job losses in public sector enterprises.
• 2000s:
o Unemployment Rate: ~5–6%.
▪ Cause: Growth in IT and services created jobs, but not enough to
absorb the growing labor force.
• 2010s:
o Unemployment Rate: ~5–6%.
▪ Cause: Slowdown in manufacturing and agriculture; growth in gig
economy jobs.
• 2020:
o Unemployment Rate: ~8–9%.
▪ Cause: COVID-19 lockdowns caused massive job losses, especially in
informal sectors.
• 2021–2022:
o Unemployment Rate: ~6–7%.
▪ Cause: Gradual recovery in economic activities post-lockdowns.
• 2023–2025 (Projected):
 o Unemployment Rate: ~5–6%.
▪ Cause: Continued economic recovery and job creation in services and
manufacturing.

Key Trends:

• GDP: India transitioned from a slow-growing agrarian economy to a fast-growing

services and manufacturing-driven economy.
• Inflation: Stabilized over time due to better monetary policy and supply-side reforms.
• Unemployment: Remained persistent due to structural issues, but the gig economy
and IT sector provided some relief.

Conclusion:
India's economic indicators reflect its journey from a planned economy to a market-driven
one, with significant improvements in GDP growth and inflation control. However,
unemployment remains a challenge, requiring structural reforms and skill development. The
COVID-19 pandemic caused temporary setbacks, but the economy is on a recovery path, with
growth expected to stabilize in the coming years.

Submitted by
Name : Fathima S
Course : BA Economics
Roll no : 719
Elaborative Analysis of Sri Lanka and India's Economic Conditions (1960s–2025)

This analysis examines the economic trajectories of Sri Lanka and India from the 1960s to
2025, focusing on key economic indicators: GDP growth, inflation rate, and
unemployment rate. The analysis highlights the causes of changes in these indicators and
compares the two economies.

1. Gross Domestic Product (GDP)

Sri Lanka (1960s–2025):

• 1960s–1970s:
o GDP Growth: ~4–5% annually.
o Cause: Post-independence focus on agriculture (tea, rubber, coconut) and
welfare policies.
• 1980s:
o GDP Growth: ~4–5% annually.
o Cause: Economic liberalization (1977) boosted exports, especially garments.
• 1990s–2000s:
o GDP Growth: ~5–6% annually.
o Cause: Post-liberalization growth in tourism, remittances, and services.
• 2010s:
o GDP Growth: ~4–5% annually.
o Cause: Infrastructure development and debt-fueled growth.
• 2020–2022:
o GDP Growth: -3.6% (2020), -8.7% (2022).
o Cause: COVID-19 pandemic (2020) and economic crisis (2022) due to debt
defaults, fuel shortages, and hyperinflation.
• 2023–2025 (Projected):
o GDP Growth: ~2–3% annually.
o Cause: IMF bailout and austerity measures stabilize the economy, but growth
remains subdued.
India (1960s–2025):

• 1960s–1970s:
o GDP Growth: ~3–4% annually.
o Cause: Focus on heavy industries and agriculture under planned economy.
• 1980s:
o GDP Growth: ~5% annually.
o Cause: Partial economic reforms and green revolution boosted agriculture.
• 1990s–2000s:
o GDP Growth: ~6–8% annually.
o Cause: Economic liberalization (1991) opened markets, attracting foreign
investment and boosting IT and services.
• 2010s:
o GDP Growth: ~6–7% annually.
o Cause: Rapid growth in services, manufacturing, and infrastructure.
• 2020–2022:
o GDP Growth: -6.6% (2020), 8.9% (2021), 6.8% (2022).
o Cause: COVID-19 lockdowns (2020) caused a sharp contraction, followed by
a strong recovery.
• 2023–2025 (Projected):
o GDP Growth: ~6–7% annually.
o Cause: Continued reforms, digital economy growth, and infrastructure
development.

2. Inflation Rate
Sri Lanka (1960s–2025):

• 1960s–1970s:
o Inflation Rate: ~5–7% annually.
o Cause: Post-independence welfare policies and import dependency.
• 1980s–1990s:
o Inflation Rate: ~8–10% annually.
o Cause: Civil war (1983–2009) disrupted supply chains and increased military
spending.
• 2000s–2010s:
o Inflation Rate: ~6–8% annually.
o Cause: Rising fuel prices and import dependency.
• 2020–2022:
 o Inflation Rate: 6.2% (2020), 46.4% (2022).
o Cause: COVID-19 (2020) and economic crisis (2022) caused hyperinflation
due to currency depreciation and fuel shortages.
• 2023–2025 (Projected):
o Inflation Rate: ~10–12% annually.
o Cause: IMF reforms stabilize prices, but inflation remains high due to
structural issues.

India (1960s–2025):

• 1960s–1970s:
o Inflation Rate: ~6–8% annually.
o Cause: Poor monsoon seasons and oil shocks (1973, 1979).
• 1980s–1990s:
o Inflation Rate: ~8–10% annually.
o Cause: Fiscal deficits and rising fuel prices.
• 2000s–2010s:
o Inflation Rate: ~6–8% annually.
o Cause: Global commodity price fluctuations and supply chain disruptions.
• 2020–2022:
o Inflation Rate: 6.2% (2020), 6.8% (2022).
o Cause: COVID-19 disrupted supply chains, and rising fuel prices drove
inflation.
• 2023–2025 (Projected):
o Inflation Rate: ~4–6% annually.
o Cause: Improved monetary policy and supply chains stabilize inflation.

3. Unemployment Rate
Sri Lanka (1960s–2025):

• 1960s–1970s:
o Unemployment Rate: ~4–5%.
o Cause: Agrarian economy with limited formal jobs.
• 1980s–1990s:
o Unemployment Rate: ~6–8%.
o Cause: Civil war disrupted economic activities and job creation.
• 2000s–2010s:
o Unemployment Rate: ~4–5%.
 o Cause: Growth in tourism, remittances, and services.
• 2020–2022:
o Unemployment Rate: 5.5% (2020), 6.3% (2022).
o Cause: COVID-19 and economic crisis caused job losses.
• 2023–2025 (Projected):
o Unemployment Rate: ~6–7%.
o Cause: Slow recovery in tourism and exports.

India (1960s–2025):

• 1960s–1970s:
o Unemployment Rate: ~3–4%.
o Cause: Agrarian economy with limited formal jobs.
• 1980s–1990s:
o Unemployment Rate: ~5–6%.
o Cause: Slow industrial growth and population increase.
• 2000s–2010s:
o Unemployment Rate: ~5–6%.
o Cause: Growth in IT and services created jobs, but not enough to absorb the
labor force.
• 2020–2022:
o Unemployment Rate: 7.9% (2020), 6.4% (2022).
o Cause: COVID-19 lockdowns caused massive job losses.
• 2023–2025 (Projected):
o Unemployment Rate: ~5–6%.
o Cause: Gradual recovery in labor markets.

Comparative Analysis:

1. GDP Growth:
a. India: Consistently higher growth rates due to economic reforms,
diversification, and a large domestic market.
b. Sri Lanka: Growth hampered by civil war, debt crises, and reliance on tourism
and remittances.
2. Inflation Rate:
a. India: Moderate inflation due to effective monetary policy and supply-side
reforms.
b. Sri Lanka: High inflation, especially during crises, due to import dependency
and currency depreciation.
 3. Unemployment Rate:
a. India: Lower unemployment due to a diversified economy and job creation in
services.
b. Sri Lanka: Higher unemployment due to reliance on tourism and remittances,
which are vulnerable to external shocks.

Key Observations:

• India: Stronger economic resilience, driven by reforms, diversification, and a large

domestic market.
• Sri Lanka: Vulnerable to external shocks and debt crises, but IMF reforms are aiding
recovery.

Conclusion:

• India: Poised for sustained growth, with reforms and infrastructure development
driving the economy.
• Sri Lanka: Faces challenges in achieving sustainable growth due to structural issues,
but IMF reforms offer hope for stabilization.

This elaborative analysis provides a comprehensive overview of the economic conditions of

Sri Lanka and India, highlighting the causes of changes in key indicators and comparing their
economic trajectories.