Trade with Lanka nosedives to 4.85% in Apr-Sept 2004-05

New Delhi, March 27 | Updated: Mar 28 2005, 06:09am hrs
After the initial euphoria following the free trade agreement (FTA), Indias trade with Sri Lanka is slowing. For the first half of this financial year, bilateral trade has grown just 4.85% at Rs 3,290.7 crore compared to Rs 3,144.5 crore for April-September 2003. This comes on the back of 42% increase in bilateral trade recorded in 2003-04. While exports to Sri Lanka have dipped 4.5% to Rs 2,715.6 crore, Sri Lankas exports continue to grow, clocking a 97% increase at Rs 575 crore.

So, have the gains from the FTA begun to diminish

No, rather, there are bound to be more mutual gains for both nations, say analysts based at the Indian Council for Research on International Economic Relations (Icrier).

It is difficult to make any conclusions based on 6-month data. Trade is very volatile, so it could be an aberration, adds an economist from Research and Information Systems (RIS).

Also, during April-September 2004, petroleum product shipments which account for 20% of Indians total exports to Sri Lanka fell 20% to Rs 618.44 crore from Rs 782.2 crore in the comparable period last fiscal. There is a feeling that saturation levels might have been reached for Indian exports. After all, Sri Lanka is a small market, opines another economist.

After the FTA was made operational in March 2000, Indian exports have been growing at a compounded annual growth rate of 30% to Rs 6,067 crore in 2003-04.

Another factor is the growing Indian direct investment in Sri Lanka. India is the third largest source for FDI in Sri Lanka, with $$450 million in investments (1978-2005), after the UK and Singapore. Indian majors like IOC, Ashok Leyland, Ceat and Gujarat Ambuja have set up operations in Sri Lanka. This, according to trade watchers, translates into lesser exports from India and more imports from Sri Lanka, as companies have begin to cater to their south Indian markets via their Lankan operations. Investments are only bound to increase after Sri Lankas recent trade pact with Pakistan. It will be cost-effective to route exports to Pakistan via Sri Lanka than Dubai, say the Icrier analysts.

Also, with the comprehensive economic partnership agreement (CEPA) likely to be inked in June, trade in services is bound to increase, they add. As on date, services account for around 30% of Indias and 20% of Sri Lankas total trade.