India steps up relations to hit US$ 10 b trade with Sri Lanka

By Uditha Jayasinghe

Stalls of dozens of Indian companies lined the walls of the pharmaceutical exhibition as yet another sign that Sri Lanka’s closest neighbour has revved up its relations this month with the intention of doubling trade to US$ 10 billion by 2017.

In the past month India has kicked up its interest and sent two business delegations to Sri Lanka, together with several personalities to promote ties with the strategically located island nation.

India is Sri Lanka’s largest economic partner in the South Asian region while the subcontinent is the island’s largest trader with 2011 numbers nearing US$ 5 billion.

Indian Commerce, Industry and Textiles Minister Anand Sharma laid the groundwork during a three-day visit to the country in the first week of August. His tour also coincided with a massive trade exhibition organised by the High Commission involving over 100 Indian companies.  

He stated at a press conference that the two countries had agreed to establish a Manufacturing Investment Zone in the Eastern Province, centred on the picturesque town of Trincomalee.  

Following discussions Sharma had with his counterparts Economic Minister Basil Rajapaksa, Commerce Minister Rishad Bathiudeen and Senior Minister Sarath Amunugama, the two countries agreed to set up a Task Force to identify investment opportunities and present them to the Indian Government within 90 days.

The Task Force will also have industry representatives from pharmaceutical, construction, engineering, auto manufacturers and skills development sectors in addition to public officials from both Governments.

The zone would concentrate mainly on engineering and manufacture of auto-parts for India’s thriving automobile industry concentrating mainly on the hubs in South India.      

Stressing that the potential between the two countries remains largely untapped, Sharma was heavy in his praise of the relationship between the two countries. He also emphasised that the Indian Government was keen on increasing exports from Sri Lanka and the manufacturing zone together with the pharmaceutical sector would provide this balance.

Sharma also took the opportunity to encourage Sri Lanka to sign a Comprehensive Economic Partnership Agreement (CEPA), which has stalled due to local private sector protests since 2008.

“There are no issues so complex that Sri Lanka and India cannot solve amicably. The Free Trade Agreement definitely increased trade and the proposed CEPA will add to this process. Trade agreements have become a global mantra and I have no doubt that this is the most rewarding step for Sri Lanka,” he told a packed media conference during his visit.

However, subsequently Indian media reported that Sri Lanka’s Commerce Department had declined to recommence CEPA talks.  The Indian Business Standard reported that the Sri Lankan Government feared granting more Indian access to its markets would destroy its own domestic industry.

However, it has made its own set of fresh demands to consider under the Free Trade Agreement (FTA), which is under operation since March 2000.

“Some sections of the Sri Lankan industry are a little apprehensive of signing a CEPA with India as it will entail services and investment trade. And their main fear is India would swamp their services industry. Besides, they want to build more political consensus on having the CEPA,” a senior Commerce Department official had told the publication.

Negotiations for CEPA were started in February 2005 and concluded in July 2008, after 13 difficult rounds, yet it is likely to remain a topic of contention between the two sides.

Undeterred, India is enthusiastically pursuing joint ventures with the pharmaceutical industry with its second business delegation in one month. 

Economic Minister Basil Rajapaksa last week pledged Government support during a meeting with the high level Indian pharmaceutical delegation, which is planning investment in Sri Lanka’s first dedicated pharmaceutical manufacturing zone.

“The Government will provide all facilities to initiate the pharmaceuticals hub and facilitate local investors to set up joint ventures with Indian and other investors,” Rajapaksa had said.

The visiting Indian team was described by the Industry and Commerce Ministry as the largest of its kind to arrive in Sri Lanka’s trade history.

Last year India’s pharmaceutical exports to Sri Lanka increased by 15.95 per cent in 2011 to US$ 126.9 million and the two countries hope to synergize with a dedicated investment zone.   

Sri Lanka’s competitive domestic pharmaceutical market is estimated to grow 11 per cent annually. The Government spends around US$ 140 million annually for pubic medical health.

Multinational pharmaceutical giant GlaxoSmithKline (GSK) announced in April that it is investing in the first-ever tablet manufacturing plant in Sri Lanka, which will also be in the same investment zone. 

The more aggressive policy was acknowledged by South Asian Association for Regional Cooperation (SAARC) Chamber of Commerce President Vikramjit Singh Sahney during a recent visit to Sri Lanka.

“There is a growing consensus that SAARC must move together as a bloc and work to promote its synergies to do business with the rest of the world. Trade and investment is a great balm on political issues between countries and India has acknowledged the need to increase business activities with its neighbours,” he told Xinhua, insisting that the subcontinent’s impressive economic growth would not be complete without the inclusion of all member States. 

India in July also lifted restriction on accepting foreign direct investment from long-time foe Pakistan.

Sri Lanka has at times had testy relations with its powerful neighbour and since the end of a three decade war in 2009 has had to work with Indian interests regarding a political solution to its ethnic issue.