Commercial Diplomacy between India and Sri Lanka

The economic relations between the two countries have opened up only since the end of the Cold War Sri Lanka was, as a matter of fact, the first South Asian economy to go for liberalisation way back in 1978. By the end of the Cold War, trade began to increase with India as India liberalised its economy Sri Lanka also perceives India as a potential for FDI supplier. There has been moreover, a steady flow of tourists from India.

Commercial Diplomacy between India and Sri Lanka
Flag of Sri Lanka and India

The trade has gradually shifted in favour of India as Sri Lankan exports to India are lesser than their imports. Both have tried to rectify trade practices through an FTA. India and Sri Lanka signed the FTA in 1998, which finally became operational in 2001. The India-Sri Lanka FTA gives duty-free preferential access to each other's goods in a time-bound manner. India exports petroleum products, pharmaceuticals, two wheelers and vegetables while importing rubber products, spices and electric wires. Indian firms operational in Sri Lanka include Tata, Jet Airways, Ashok Leyland, CEAT, Apollo and so forth.

In 2003, a Joint Working Group was established for a comprehensive economic partnership agreement (CEPA). This was done to enhance the FTA and envisage the promotion of cooperation in the service sector. India is also undertaking development of the Trincomalee port as this will boost its strategic presence vis-à-vis Sri Lanka. 

Indian Oil Corporation (IOC) is planning that a six million tonne per annum Grandfield refinery be established in Sri Lanka through direct investment. At present, Sri Lanka has only one 2.5-million-tonne refinery.

Comprehensive Economic Partnership Agreement(CEPA)

India envisages services-based cooperation in CEPA. However, Sri Lanka has had expressed some reservations, it hopes for more economic and technical cooperation rather than increased movement of Indian professionals in Sri Lanka as expressed in the CEPA. Sri Lanka favours an Economic and Technical Cooperation Agreement (ETCA) over the CEPA. In the CEPA, India had decided to open up 80 sectors for Sri Lanka and advised that Sri Lanka open up IT and marine ship building sectors. 

As the proposed CEPA would liberalise investment and trade in services, goods and facilitate movement of people, Sri Lanka feared that Indian firms may ultimately come to dominate the Indian economy space and might eventually lead to loss of jobs for the Sri Lankan native population. The movement of people's clause is highly resented by Sri Lanka. In 2015, Maithripala Sirisena took office as the new President of Sri Lanka and has revived the talks for a CEPA and has assured Sri Lankan industrialists that no negative impact on the Lankan economy would be occasioned by said arrangement.

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