Rejoinder to Dr. Priyanga Dunusinghe Pathfinder hypocrisy or bias on the part of the author?

Dr. Priyanga Dunusinghe has made a substantive contribution to the discussion on Indo-Lanka economic relations in his article entitled ‘Hypocrisy or backing Indian deals: Will Pathfinder Foundation find the correct path?’

Justifying the Indian agenda?

Dr. Dunusinghe claims that the entire Pathfinder Foundation (PF) article sought to justify the Indian agenda for the Wickremesinghe/Modi meetings and the subsequent official level interactions. 

The first point to be made is that the PF Economic View Point entitled ‘Indo-Lanka relations: Building confidence and boosting economic cooperation’ was published on the eve of the Prime Minister’s visit to India. Hence it focused on issues which were expected to feature in the bilateral consultations during the visit. 

In this connection, Dr. Dunusinghe’s article is selective and unbalanced in the issues it has addressed. It conveniently ignores the following positions set out in the PF article:

The article called for a robust pursuit of Sri Lanka’s national interests on the fisheries issue. It stated that the interests of poor northern fishermen should not be sacrificed for the purpose of improving Indo-Lanka relations. 

The article also points out that India must look beyond local interests, particularly Tamil Nadu, if New Delhi is to develop a meaningful and long-term strategic relationship with Sri Lanka.

In addition, the PF article also refers to expansion of commercial relations with China. It also goes on to state unequivocally that the Port City Project should go ahead (with modifications, if necessary) despite reports of India’s concern about the strategic implications of this project. 

In the light of all this, it is difficult to understand Dr. Dunusinghe’s cavalier claim that the PF has merely lobbied for Indian interests. Dr. Dunusinghe’s assertion is clearly untenable. It raises the question whether he was overly influenced by preconceived notions at best or bias and prejudice at worst. It is reasonable to expect greater intellectual rigour and higher standards from an academic. 

The PF would next like to address each of the issues which led Dr. Dunusinghe to conclude that the PF was guilty of “hypocrisy” and/or “ backing Indian deals. “ We hope our responses will convince readers that the PF is seeking to contribute to the finding of “the correct path.” 

Indo-Lanka CEPA

On the Indo-Lanka Comprehensive Economic Partnership Agreement (CEPA), Dr. Dunusinghe writes “...The PF emphasises that it has consistently advocated the signing of the Agreement. It is surprising how the learned team of analysts at the PF can recommend signing of an agreement which has not been finalised and most importantly not been seen by anyone other than possibly those who have drafted it.” 

The PF position has been that the current FTA on goods should be deepened and the rules-based framework should be extended to services and investment. The PF advocates this as it is of the opinion that a rules-based framework offers the best possible protection for smaller countries in their economic relations with a much larger partner, provided that asymmetry is handled through the principles of non-reciprocity and special and different treatment. The PF article also indicates that there are trade measures, such as negative lists for goods, positive lists for services and safeguards against import surges which can be used to protect Sri Lanka’s national interests. 

India has publicly accepted the principles of non-reciprocity and special and differential treatment as well as asymmetric negative and positive lists for trade in goods and services respectively. Given this, the overall thrust of the PF position is that the CEPA is in Sri Lanka’s interests but it needs to be negotiated effectively. It is possible to adopt this position on the basis of the advantages of a rules-based framework for Indo-Lanka economic relations as well as India’s stated willingness to accommodate the principles necessary to handle asymmetry, without seeing the details of the draft agreement. 

Dr. Dunusinghe also writes “...The PF either purposely or by omission ignores research literature which has highlighted the necessity of addressing the present shortcomings found in the Indo-Lanka FTA before considering further deepening of bilateral trade negotiations.” 

The PF would like to counter this by quoting directly from the PF article under reference. “The Prime Minister’s visit offers an opportunity to press Mr. Modi on his promise to move expeditiously to address various barriers which continue to reduce the effectiveness of the Indo-Lanka FTA. De-linking a Mutual Recognition Agreement (MRA) from the CEPA negotiations and fast-tracking its signing would boost Sri Lankan exports and serve as a significant confidence-building measure, as would addressing other NTBs, which are undermining the benefits of the FTA.” 

Dr. Dunusinghe has either inadvertently or intentionally chosen to ignore this passage in the PF article and has therefore clearly misled readers by claiming that the PF article has made no reference to existing barriers to trade. 

Dr. Dunusinghe has also wondered “how and why the PF, always promoting competition, freer trade and a level playing field has contradicted itself with regard to prescribed bilateral favourations… We, as readers in economics, are eagerly waiting to see how the free trade champion theorists react to these propositions of seemingly self-contradicted PF in the weeks to come.” 

The PF in previous writings has made it clear that multilateral trade liberalisation is the best option as it avoids trade diversion and the misallocation of resources. However, with the continuing impasse in the Doha Round multilateral trade negotiations, the whole world is resorting to regional and bilateral agreements. So Sri Lanka should not be left behind. 

Regional integration in South Asia is constrained by the tensions between India and Pakistan. Consequently, bilateral agreements are the most likely option available to Sri Lanka at the present time. The PF has advocated the signing of bilateral agreements with China, South Korea and ASEAN countries, not just India. This particular article under reference has focused on CEPA as it was related to the Prime Minister’s visit to Delhi. We, therefore, reject Dr. Dunusinghe’s claim that the PF particularly favours the Indo-Lanka CEPA. 

Indian lines of credit

On increasing Indian lines of credit, Dr. Dunusinghe writes, “Isn’t it funny that the learned economists at the PF do not see the Indian lines of credit are borrowings? How can the PF having been quite independent and liberal in its postulations, prescribe more foreign borrowings for a highly foreign debt-ridden economy such as Sri Lanka?” 

Here too, the PF would like to counter this critique by quoting directly from its article to demonstrate that Dr. Dunusinghe has once again misled the readers. The PF article states “...priority should also be attached to increasing Indian lines of credit for infrastructure projects. These should catalyse private flows for infrastructure development.” 

The key point stressed by the PF is that the Indian lines of credit should be used as sweeteners to promote FDI into the infrastructure sector. This is common practice in many countries. Dr. Dunusinghe would be well aware of: (1) the need for non-debt-creating foreign inflows to fill the savings/investment gap; and (2) the need for PPPs to maintain the momentum of infrastructure development given the lack of fiscal space. In such a context, the PF is of the view that there are sound reasons for seeking to use the Indian lines of credit to catalyse private flows. 

Dr. Dunusinghe has also made a lengthy critique of the PF’s reference to funding railway projects through Indian lines of credit. Here, we acknowledge that this issue requires careful scrutiny. In fact, while the first version of the PF article, which appeared in one newspaper, contained a reference to using Indian lines of credit for railway projects, subsequent publications in other newspapers omitted the specific reference to railways following internal consultations within the PF. These consultations and the decision to withdraw the reference to the railways took place well before the publication of Dr. Dunusinghe’s article. 

Advocating poor economic governance? 

Dr. Dunusinghe states that “It is depressing to note that an independent think-tank, such as the PF, has opted to disseminate seemingly biased opinions in favour of infrastructure such as railways, while disregarding the necessity to go for the most competitive supplier/lending agency, clearly contradicting their longstanding stance for economic good governance.” 

Here again, the PF would like to point out that nowhere in its article has it advocated that preferential treatment should be given to PPP projects drawing on the Indian commercial lines of credit. The PF article under reference merely states that the lines of credit should be used to catalyse private flows into infrastructure development. All such proposals/projects should be subjected to the usual evaluation/procurement processes. We do not see any contradiction in the PF position, unless one’s outlook is clouded by preconceived notions or biases. 

Postscript

The PF welcomes Dr. Dunusinghe’s critique as part of a much-needed discussion on issues related to Indo-Lanka relations. It is in Sri Lanka’s interests to see India as an opportunity rather than a threat. The PF has written several articles setting out the reasons for this. 

The PF is an independent and non-partisan think-tank which seeks to promote market- friendly policies and sound economic management. It is also on record supporting a 360 degree foreign policy which promotes stronger economic links with several of Sri Lanka’s partners and not just India. These include China, Japan, South Korea and the US. In the PF’s view, its article sought to explore how Sri Lanka could benefit from Prime Minister Wickremesinghe’s visit to India, while protecting Sri Lanka’s national interests. We have tried to demonstrate this in our rejoinder to Dr. Dunusinghe. 

It is very perturbing that Dr. Dunusinghe has alleged that the PF article under reference seeks to justify the Indian agenda. This response has sought to refute this. Dr. Dunusinghe’s cavalier attitude to what was actually contained in the article falls below the expectations one would have of an academic. This raises the question of whether he was unduly influenced by preconceived notions or unfounded bias. 

(View Point articles issued by the Pathfinder Foundation can be read on www.pathfinderfoundation.org. Readers’ comments are welcome.)