Friday, 14 February 2014 00:00
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AN Indian business delegation during a meeting with local journalists this week had emphasised the need to sign the long-delayed Comprehensive Economic Partnership Agreement (CEPA).
The talks follow on discussions last year that highlighted the need for targeted Indian investment with a view to assisting Sri Lanka widen its export base and enabling integration into regional supply chains, including in the automobile parts, light engineering and pharmaceutical sector. The Sri Lankan side had emphasised the importance of bringing in more investments in the form of joint venture projects to encourage the Sri Lankan private sector and State enterprises to work together, like in the case of the sugar refinery in Hambantota, which will replace imports as well as expand exports.
These are positive developments indeed, but can there be a competitive and timely way forward without CEPA? Does Sri Lanka’s continued reluctance to deal with the concerns of its own business community mean that the entire economy is paying for this oversight?
Trade relations between the two nations marked a historical milestone with the signing of the Indo-Lanka FTA in 1998. Since then the value of two-way trade had grown from about US$ 650 million in 2000 to well over US$ 3 billion by 2010.
Indian FDI started moving into Sri Lanka in 1982 when Ashok Leyland decided to set up a bus assembling plant in collaboration with the Government of Sri Lanka. However, substantial Indian investments began flowing in only from the mid-1990s. They included investments in construction materials such as steel, cement, paint industries and roofing sheets.
The third wave of Indian investment followed the Indo-Lanka FTA with the developments in air traffic and relaxation of visas for Indian nationals. The cumulative Indian investment in Sri Lanka, which stood at around US$ 24 million in 2000, has increased to US$ 600 million by 2011. Today, India ranks within the top five foreign investors in Sri Lanka.
Several Indian companies such as Indian Oil, Bharti Airtel, ICICI Bank, Asian Paints, Ashok Leyland, etc. have immensely benefitted by investing in Sri Lanka. Meanwhile, companies such as Taj Hotels and CEAT have become household brands among the Sri Lankan people. Indian investors have also been enjoying the benefits of the constitutional guarantee of investments, duty-free market access under the ISFTA, double taxation and investment protection treaties. There is also a high level of technology transfer within these investments and economists have already argued it is far higher than in similar Chinese ventures.
Both Sri Lanka and India have been recording an impressive performance on the tourism front as well. As many as 250,000 Sri Lankans had visited India during 2012, while India topped the list of tourist arrivals in Sri Lanka in the same year. India continued to be at the top in 2013 as well recording over 138,000 tourist arrivals.
It is clear that much potential exists for Indo-Lanka trade, but the challenge is in figuring out how to tap this potential in a mutually-beneficial manner. India has already signed CEPAs with other countries, some smaller than Sri Lanka, with positive results. Continued delay by Sri Lanka could result in the entire country losing many lucrative opportunities. Therefore, perhaps it is time to lay the CEPA issue to rest with positive and transparent engagement between both countries.
