It would have been even better, higher, and faster?. That?s how experts and diplomats view Indo-Sri Lankan economic relations in the recent past. They say this based on the steady growth in trade and investment between the two countries in spite of the ethnic conflict in the island nation that has been raging for the last 30 years.
With the end of the strife in sight, it is expected that the trade and investment relations would gain momentum and reach new heights. The much-discussed and ready-to-sign Comprehensive Economic Partnership Agreement (CEPA) that would take the relation beyond trade in goods to cover services, investments and multi-sectoral economic co-operation, is expected to be signed soon, Sri Lankan diplomatic sources in Chennai shared.
By July 2008 CEPA was fully negotiated. There have been some reservations from the Sri Lanka side. Now every issue has been clarified and the agreement would be signed shortly. India is the largest trade partner of Sri Lanka and in South Asia Sri Lanka is India?s largest trade partner.
The bilateral trade and investment relations have grown to be so strong that the overall trade turnover jumped from $658 million in 2000 to over $3200 million in 2007. It is estimated that it would almost be the same in 2008 also, though the meltdown had dampened global trade.
Indian investment in Sri Lanka also posted significant growth and remained to be the single largest investor in that country. The growing economic relations were manifested in the rapid growth of the operations of Sri Lankan Airlines in India ? it is the foreign airline with the largest flight destinations in India ? about 100 flights to 11 destinations every week.
Building bocks
The signing of the Free Trade Agreement (FTA) in December 1998 and its implementation in March 2000 has been the turning point in the bilateral relations between the two countries. FTA helped expansion of trade between India and Sri Lanka. India made 4,150 tariff lines zero duty for Sri Lankan exports in the course of three years.
Sri Lanka did liberate 3,932 tariff lines for Indian exporters over a period of eight years. Now 1,180 tariff lines remain in the Sri Lankan negative list including agriculture and livestock items, rubber products, paper products, iron and steel, machinery, and electrical items.
India keeps 429 items in the negative list and they include garments, plastic products and rubber products etc. In addition to these concessions, India has also offered quotas on tea, textiles and garments.
After the expected signing of the CEPA more items on either side would be removed from the negative list. Studies have shown that the Indian exports to Sri Lanka are mostly on the non-FTA route. But for Sri Lanka close to 90% of its exports to India are under FTA.
Past perfect
Indo-Sri Lankan economic relations had been very vibrant on the investment front. The latest to enter Sri Lanka was Bharati Airtel launching its services as the fifth mobile operator in Sri Lanka in January 2009. Britannia also has started its operations in Sri Lanka. In 2007, India, with a total investment of over $400 million was the leading investor in Sri Lanka. The Indian investor team in Sri Lanka include the Tatas (Taj hotels, VSNL, Watawala tea plantations), Ashok Leyland, Ultratech, Nicolas Piramal, CEAT, L&T, and Lanka IOC.
Lanka IOC expanded its operations by setting up a lube plant. Piramal Glass started its new plant in Horana to manufacture glass in Sri Lanka. Sri Lankan real estate companies have also announced a tie-up with Indian companies to establish IT Parks in Sri Lanka. Four Indian banks, the LIC, and education service providers like NIIT also are active in Sri Lanka. Similarly Sri Lankan companies also have made their investments in India. They include Ceylon Biscuits (Munchee brand), Carsons Cumberbatch (Carlsberg), Brandix (Textile city in Vizag), MAS holdings, John Keels, Hayleys, and Aitken Spence (Hotels). There are also investments in the freight servicing and logistics sector from services industry.
At the government level, India has been extending substantial developmental aid to Sri Lanka. India has sanctioned a $281 million line of credit to the Sri Lankan government for various purposes. In addition to this another credit line for $100 million was sanctioned for the upgradation of Sri Lanka?s southern railway corridor between Colombo and Matara.
India is also extending support in infrastructure sector like power. NTPC is teaming up with the Ceylon Electricity Board (CEB) to set up a joint venture for a coal-based 300 mw thermal power project at Sampur in eastern Sri Lanka, investing $ 500 million. India and Sri Lanka are also in talks to conduct a feasibility study on establishing inter-connection of electricity grids between the two countries. An MoU is likely to be signed soon.
Recently, the Indian government extended Rs 100 crore as relief. The Tamil Nadu government has also sent relief materials thrice since November 2008 as well as Rs 25 crore.
Whether the relief will help in rehabilitation as the end of the strife is in sight, is still open to conjecture. But it will hopefully open a brand new chapter for the trade ties between the two countries.
