Study urges Lankan private sector to plug into India’s supply chain

By Shabiya Ali Ahlam

A top study is urging the Sri Lankan private sector to plug into and benefit from India’s booming supply chain.

“Diminutive integration into production processes in India is what Sri Lanka has exposure to in terms of producing and manufacturing ‘parts and components’ for export markets and this is attributed to the fact that India does not have globalised supply chains,” revealed the study titled ‘Integrating Sri Lankan industry into the Indian Supply Chain’ compiled by Colombo Head of Department of Economics Dr. Sirimal Abeyratne and the Pathfinder Foundation. The complied research will be made available on The Pathfinder Foundation website within the next two weeks for perusal by interested parties on the subject area.

Dr. Sirimal Abeyratne briefing the gathering on the findings of the study while Luxman Srirwardena, Dr. Indrajit Coomaraswamy and Dr. Valsan Vethody look on

Key findings of the study that stresses on Sri Lanka being able to take advantage in being the source for India’s raw material imports were shared with the media yesterday by Dr. Abyeratne at a presentation, which also included Pathfinder Foundation Deputy Chairman Dr. Indrajit Coomaraswamy, Executive Director Luxman Siriwardena and Advisor Dr. Valsan Vethosy.

The study is based on a classification of trade data into different categories such as finished goods, raw materials, parts and components, and capital goods, and shed light to the reality that Sri Lankan integration into the manufacturing processes in India is relatively weak.

Dr. Abeyratne noted that the key commodity category for entering into supply chains is the export of parts and components which accounts for only 7% of Sri Lanka’s total exports to India, and that the imports of India from Sri Lanka is also overwhelmingly concentrated in two commodity categories – rubber tires and machinery items.

“While Sri Lanka also exports a smaller share of capital goods such as machinery, over 20% of Sri Lanka’s exports to India still exhibit ‘old-style’ raw material supply,” he added. As a matter of fact, Indian manufacturing processes are noted to have made slight changes in terms of expanding into globalised production processes, unlike the case in labour-abundant China and other countries in East and Southeast Asia.

“This is confirmed by India’s total import mix from the world in which raw materials account for 45%, and parts and components only 6%,” Dr. Abeyratne further stated. Sri Lanka is upgrading its ports and airports and India is recognised for doing the same. Dr. Abeyratne also noted that at a glance, one would assume that if Sri Lanka is to make an entry into the global supply chains, for obvious reasons the most attractive market to venture into would be India.

Reasons for making such an assumption includes the fact that it has a fast growing market which is substantial in size, it being within close proximity, having the bilateral free-trade establishment through the Indo-Lanka Free Trade Agreement, it being the biggest trading partner of the country, while it is also recognised as the biggest source market for travel and tourism and port services, and most importantly the fact that the historical links between the two countries are beyond economic spheres.

The logistics necessary for the sharing of products between the two countries is taking place. Dr. Coomaraswamy stated: “Companies should recognise these opportunities and make the most of it.”

Dr. Coomaraswamy further contributed to the discussion by saying that the nature and degree of Sri Lanka’s integration into the Indian supply chains will be a result of both supply-side factors in Sri Lanka and the demand-side factors in India.

“Factors need to be analysed at both ends to encompass the level of economic progress, trade and development policies, the nature and the degree of trade facilitation, and the cross-country differences in comparative advantages,” he said.

Dr. Abeyratne ended the briefing by stressing that having a mere ‘tariff-free’ regime established under the Indo-Lanka FTA would not be sufficient whereas even the FTA’s implementation in the context of rising protectionism could be unfavourable.

The Foundation recommends that the natural thing to do is to convince Indian companies that their bottom line can be improved by sourcing some of the inputs necessary for their production from Sri Lanka. To facilitate this, the Foundation said that the Government will have to create better conditions for Sri Lankan companies to be competitive which include bringing in macroeconomic stability, lower interest rates, and competitive exchange rates while acknowledging that fact that the budget deficit will have to improve to achieve this.