Indo Lanka trade ties likely to blossom under new Government in Colombo

NAR (New Delhi): Economic and trade ties between India and Sri Lanka are expected to get a boost under the Government of Ranil Wickremesinghe, whose victory in Parliamentary polls thwarted pro-China Mahinda Rajapaksa’s bid for a political comeback.

Sri Lanka is India’s second-largest trading partner in the eight-nation South Asian Association for Regional Cooperation whose other members are Afghanistan, Bangladesh, Bhutan, Maldives, Nepal and Pakistan. India is Sri Lanka’s largest trade partner globally.

Bilateral trade in 2014 reached $4.6 billion, up 23% from the previous year, according to Sri Lankan Customs. India’s exports to Sri Lanka in 2014 totaled around $4 billion, while Sri Lanka’s exports to India were valued at over $620 million.

With Wickremesinghe set to return as Prime Minister in Sri Lanka, his Indian counterpart, Narendra Modi, congratulated him Tuesday on his alliance’s “wonderful performance” in the 17 August elections. 

He expressed confidence bilateral ties “will get stronger” under his leadership. Rajapaksa, who lost the January presidential contest to Maithripala Sirisena, moved Sri Lanka closer to China during his decade-long tenure. On his watch, China invested heavily in development projects after nearly 30 years of civil war ended on the island in 2009.

“Wickremesinghe has a very good rapport with the Indian side, and his victory will consolidate India’s ties with Sri Lanka in all spheres. India also wants to enhance the bilateral trade ties [and take them] to the next level,” said Pankaj K. Jha, research director at the Indian Council of World Affairs.

He said bilateral trade is expected be more comprehensive now, involving more services as well as goods. “Both India and Sri Lanka need development and thus they need to integrate in a regional value addition chain, which should also involve countries like Bangladesh, Nepal and Myanmar. We all have strong fundamentals to grow together,” Jha said. Among the sectors with investment potential in Sri Lanka, he said, are pharmaceuticals, cars, cement, and light machinery.

According to official data, India is investing in diverse areas of Sri Lanka’s economy including petroleum retailing, information technology, financial services, real estate, telecommunications, hospitality and tourism, metal industries, tires and glassmaking. It is also involved in infrastructure development -- railways, power and water supply.

Among the Indian companies active in Sri Lanka are FMCG major Dabur, which has set up a $17 million juice processing plant; and ITC, which is investing $300 million in a luxury hotel and residential development.

The two countries have a free trade agreement that came into force in March 2000. Now India is pushing for a comprehensive economic partnership agreement to deepen ties. FTAs are generally limited to goods, while CEPAs include services and investment. But Sri Lanka’s big trade deficit with India has made it unenthusiastic about a CEPA so far.

In his March visit to Sri Lanka, Modi made a strong pitch for a CEPA. “I know there are concerns here about the huge trade imbalance. I am prepared to work with you to address them. I want balanced growth in trade. We will try to make it easier and smoother for you to access the Indian market,” he told Sri Lankan business leaders.

Separately, in an address to the Sri Lankan Parliament, he said India’s trade environment was becoming more open. “Sri Lanka should not fall behind others in this competitive world. That is why we should conclude an ambitious Comprehensive Economic Partnership Agreement,” said Modi, the first Indian prime minister to visit the country in 28 years.

Jha said India favours a negotiation process with a deadline for the CEPA “so that the two sides arrive at an understanding for their mutual benefit”.