Tapping Indo-SL synergies

Saturday, 4 August 2012 01:34 -     - {{hitsCtrl.values.hits}}

Indo-Sri Lanka relations have always been interesting not only because of their implications but also given the way in which they change. Economic relations have always been important because India is Sri Lanka’s largest trade partner and the visit of the Indian Commerce Minister together with 105 company representatives has opened new opportunities for the country.

It has also brought old contentions to the forefront. While India has pledged to increase trade with Sri Lanka to US$ 10 billion by 2017, with investment in tourism, pharmaceuticals and construction in the pipeline, the familiar ghost of the Comprehensive Economic Partnership Agreement (CEPA) has also reappeared.

A manufacturing zone in Trincomalee is a positive step, but both parties need to ensure that their partnerships are sustainable. In an environment where India has even welcomed Foreign Direct Investment from archrival Pakistan, it is imprudent for Sri Lanka to lag behind. Yet there have to be actions that back the political words of support.

Commerce Minister Sharma has warm words, insisting that any issues pertaining to CEPA will be ironed out and that India does not expect reciprocity in terms to trade access, but such sentiments need to be put in credible writing to inspire the local private sector.

On Sri Lanka’s side, more confidence, open mindedness and transparency from officials would form a competent platform for welcoming initiatives. India needs to sincerely open up its economic opportunities and have a heart as large as its landmass.    

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 over US$ 4.5 billion by 2011.

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.

Both Sri Lanka and India have been recording impressive performance on the tourism front as well. As many as 250,000 Sri Lankans had visited India during 2010, while India topped the list of tourist arrivals in Sri Lanka in the same year. India continued to be at the top in 2011 as well recording over 138,000 tourist arrivals. This registers a spectacular growth of 45% in comparison to the same period in 2010.

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.