Indian Prime Minister Narendra Modi’s re-election offers Sri Lanka an opportunity to strengthen relations with its bigger neighbour, ensuring better security and investments the island badly needs to accelerate economic growth, economists and analysts told Sunday Observer Business.
“Prime Minister Modi has received a strong mandate to pursue his economic reform program. If he can fulfill his goal of a rapidly growing Indian economy, this will benefit Sri Lanka as it gives us a good market opportunity at our doorstep,” said Anushka Wijesinha, an economist at the Ministry of Development Strategies and International Trade.
“If Indian manufacturing also picks up it may provide spillover opportunities for supply chains in Sri Lanka. We are already formulating a ‘Break Into India’ strategy to prepare our businesses to succeed in India.”
Stable conditions
Former central bank deputy governor, W. A. Wijewardena said he believes the Sri Lankan government should tap the opportunities provided by a strong government in India, which has helped Sri Lanka during at crucial times in the past, to attract badly needed investments.
But Sri Lanka should play its cards properly and ensure stable conditions and the rule of law, he noted.
“Sri Lankans should begin to treat India as an economic partner rather than an economic competitor,” Wijewardena said. “As a long term policy, Indian investments, especially in export oriented, hi-tech industries and services is a must if Sri Lanka is to get out of the present economic debacle where its growth rates have been falling year after year and the best prospect for the next five years too will not be better. In this case, Sri Lanka should tap the Indian surplus of foreign funds with its corporate sector.”
India, like any other nation, follows a policy that is best for its interests and its relationship with neighbours too is guided by this stately principle, Wijewardena explained. Sri Lanka and India have been related to each other culturally, ethnically, politically and economically for millennia. Hence, India views Sri Lanka as an opportunity to promote its interests. In this respect, Sri Lanka being the small brother as against the big brother of India, is a beneficiary given India’s prominence today as a regional powerhouse with respect to technology, economy, world relations and military strength.
“Sri Lanka should, therefore, have a cautious approach with India,” Wijewardena said. “Since there is now a strong, stable government in power in India, Sri Lanka should tap that power for its benefit. Sri Lanka’s battered economy badly needs a quick jump-start to tackle the chronic and acute foreign exchange problem as the top priority and then drive the economy toward its long term growth path. In both respects, India is a source.”
Wijewardena explained how in the past India had come to Sri Lanka’s rescue when Sri Lanka had faced severe foreign exchange problems. “I recall when the government’s war against the LTTE was at its peak in 2008 and the country’s foreign exchange reserves had dwindled to a record low level that was sufficient to finance only six weeks’ imports, the IMF, from which the government had asked for a Stand-By-Facility of US$2.6 billion, had been sitting on the application due to pressure from LTTE sympathisers. India’s Finance Minister Pranab Mukherjee who later became its President told the IMF that if it did not approve this loan, India will give this money to Sri Lanka.”
That moral support did the trick and the IMF was forced to approve the loan. Subsequently, the Reserve Bank of India came to the rescue of Sri Lanka by offering a handsome amount of dollars in a SWAP facility with the Central Bank. This continued for a long time till early 2014. “Today, Sri Lanka’s Central Bank has no choice but to go for such a facility with RBI to replenish its dwindling foreign exchange resources,” Wijewardena said.
Reopen talks
It is also time to reopen talks on the Comprehensive Economic Partnership Agreement (CEPA), abandoned due to political reasons, Wijewardena believes. “But the negotiations should be done from Sri Lanka’s side by a team which is competent to do this job as against the well-trained and smart Indian counterparts.
All the dissenting groups such as IT and other professionals should be brought to the negotiating table to allay any fears they have about the alleged influx of Indian experts to Sri Lanka’s job market. The Sri Lanka Government should be able to rally all parties in the country, opposition, Buddhist clergy, and professionals around its objective of establishing sustainable economic cooperation with India.”
Wijewardena said Sri Lanka should also act fast to neutralise the negative fallout from the recent Islamic extremist-related violence and subsequent mob attacks on Muslim-owned businesses which could trigger an outflow of investments while discouraging investment inflow.
“This is a crucial issue and it is necessary that the government take effective measures against any future mob attacks which could affect investments that are to flow in to the country,” he said. “It requires the government to adopt the rule of law strictly on any violator of the country’s laws. Sri Lanka cannot benefit from India’s strong, stable government if Sri Lanka is a battered and divided nation ready to get ignited by the simplest excuse that may be thrown before a gullible public.”
Ensure better security
An analyst with an international agency said the re-election of Indian Prime Minister Modi augurs well for Sri Lanka, which could also use the relationship to ensure better security. “India is our closest neighbour and therefore, should be a close ally. PM Modi has an excellent dialogue with our Government and the Opposition. We must reinforce that.”
He noted how India supplied Sri Lanka with timely intelligence about the planned attacks by Islamist extremist in April. “India has supplied us with intel. It is we who failed to act. That tells us that we have to work with India more closely. They can look after at least one-third of our border that is closest to them.”
Collaboration with Indian companies
This analyst noted how India has made great strides in some segments of industry. “They have also embraced new technology. We should encourage collaboration with Indian companies that can add value to our core abilities and competitive advantages. Sri Lanka lacks capital for large scale investment and we should seek the same from India.”
Sri Lanka should also ensure its existing Free Trade Agreement with India is working well before moving on to a deeper economic partnership, the analyst said. “We should see if the FTA is performing effectively first. If not, we must set wheels in motion to get that sorted. We can move into a CEPA after that. Sri Lanka has already missed the bus. We don’t need large industry players. We need to look at second tier companies that will employ locals and add value to exports. For example, tire and solid tire manufacturers from India already operate in Sri Lanka.
Fresh negotiation team
”Yes, we need a fresh negotiation team. In Dr. Saman Kelegama we had a man who understood trade and negotiations. We need someone like him with international experience and understanding of local and global economies to lead trade negotiations.
“The greatest contribution that India has given us is Buddhism. Apart from Buddhist pilgrimages we should forge greater contact with India for literary, cultural, social and heritage reasons. For example, we probably have Pali and Sanskrit scholars who can put that knowledge to better use, such as through museum, music and dance exchanges and special exhibitions,” the analyst said.