25 May, 2024


The Politics Of India’s Relationship With Sri Lanka: What India Really Wants

By Kath Noble

Kath Noble

While Tamil Nadu is fixated with the politics of India’s relationship with Sri Lanka, as was amply demonstrated by the hullabaloo over the conference of the Tamil Eelam Supporters’ Organisation in Chennai on August 12th, the rest of the country has been focusing on rather different issues.

The August 2nd to 5th visit to Colombo of Union Commerce Minister Anand Sharma brought with it announcements of several major developments on the economic front. He spoke of doubling bilateral trade to $10 billion per year by 2015, plus a considerable increase in investment and the resumption of negotiations on the much-postponed CEPA. Meanwhile, a 20-member delegation of India’s top business leaders were holding talks with their Sri Lankan counterparts, and more than 100 companies were showing off their wares at the India Show organised by the Confederation of Indian Industry at BMICH.

Of course, economics is not apolitical. Indeed, making the Sri Lankan economy more dependent on India has often been suggested by Indian analysts as a means by which New Delhi can acquire greater leverage over the Government.

However, Sri Lanka is already economically vulnerable, with around 60% of its exports going to the West. We have seen the follies of such dependence in the last few years as demand from Western countries has fallen with the Global Financial Crisis and subsequent recession. And during the war, we saw the potential political impact when trade preferences under their GSP schemes came up for renewal – both the European Union and the United States attempted to use the opportunity to push for their preferred policies, never mind what the Sri Lankan public wanted. A more balanced export profile would reduce these problems. Anyway, only 15% of Sri Lankan exports go to Asia, and with the region likely to continue growing faster than Western nations for decades to come, Sri Lanka really ought to be thinking about where it wants its markets to be.

India’s desire to increase Sri Lanka’s dependence on its economy may be motivated by other concerns, but that doesn’t mean increased Indian involvement is a bad thing. The Government just has to be careful.

To that end, let us look at a few concerns with the Indian proposals.

First and foremost, the CEPA is being sold to the Sri Lankan public using exactly the same rhetoric as was employed for the FTA. It is described as a wonderful opportunity for Sri Lanka to access the huge Indian market, with absolutely no danger of huge Indian companies swamping their Sri Lankan counterparts since India is not asking for reciprocity.

Who do they think they are kidding? The FTA was driven not by any desire on the part of India to help its neighbour but by the interests of the Indian business class, who had precisely two objectives – exporting more of their goods to Sri Lanka without paying tax and thus increasing their profits and increasing their profits by avoiding tax on their imports to India by diverting them through Sri Lanka.

Officials present the considerable increase in trade between the two countries since the entry into force of the FTA as undeniable proof of its success. However, this is far too simplistic. For a start, while Indian exports to Sri Lanka have been increasing steadily throughout, Sri Lankan exports have followed a rather different trajectory – going up rapidly at first, then from 2005/6 gradually falling back. More crucially, the increase in Sri Lankan exports was largely in goods in which Sri Lanka is not competitive globally, and the trade proved unsustainable.

In 2005/6, more than 50% of Sri Lankan exports to India were of just two items – copper products and animal and vegetable oils – which is rather surprising, given that Sri Lanka doesn’t produce the necessary raw materials.

In fact, the raw materials come from ASEAN, and they were heavily taxed by India at the time of the signing of the FTA. Sri Lanka, on the other hand, applied low tariffs, due to its earlier and deeper liberalisation – starting in 1977 rather than 1991 in India – and the fact that it offers incentives to foreign investors enabling them to import inputs for goods to be manufactured for export without paying tax at all, plus tax holidays for operations in Free Trade Zones. Indian businessmen promptly invested in a number of processing units in Sri Lanka. However, in the end this led to trade disputes, following which Sri Lanka had to introduce various limits on its exports to India, and finally in 2010 an FTA between India and ASEAN came into effect. The tariff difference disappeared, and Sri Lankan exports of copper products and animal and vegetable oils fell almost to zero.

We cannot say this trade was definitively a bad thing, since India’s exports to Sri Lanka would have grown even without the FTA – more than 50% are either petroleum products, vehicles or iron and steel, which are all excluded from the agreement. The trade reduced Sri Lanka’s problem with its balance of payments.

However, it is silly to suggest that it proves how good liberalisation was and will be for evermore, as officials do. After all, the trade didn’t go on for long – the few Sri Lankans who found jobs in Indian-owned factories lost them after a while, and the factories themselves are now unused and indeed useless.

The question for Sri Lanka is what to replace it with.

As usual, India seems to have the answer. This is the second major concern.

The CEPA is another of India’s babies. The expansion of the FTA to include not just trade in goods but also trade in services and investment is its much-cherished and long-awaited next step in its bilateral relationship with Sri Lanka. India is Sri Lanka’s number one investor. Also, services are its fastest growing export. The Indian business class wants more security for its investments in Sri Lanka and more opportunities to sell not just its goods but also its services – energy and education (hence the Government’s mysterious determination to push forward with the Private Universities Bill?) have been mentioned as priorities.

The major stumbling block has been Sri Lankan business, a section of which has been vigorously opposing the CEPA ever since it was first proposed, coincidentally or otherwise in 2005/6.

However, last week it was reported that the Chairman of Laugfs Holdings, who was one of the businessmen professing to be so worried about Sri Lanka being swamped by huge Indian companies if the CEPA were signed, is now quite keen on the idea. What changed? India has promised to bring Sri Lankan businessmen into joint ventures in services and also into the Indian manufacturing production chain. There are plans to set up Special Economic Zones, one in Trincomalee to make parts for vehicles and other engineering goods, and another somewhere yet to be decided to produce pharmaceuticals – a delegation to discuss the modalities was expected in Colombo on August 14th.

This could well be good for Sri Lanka. At least, it will add to capacity in both manufacturing and services and hopefully support exports, including to India, improving the ever-worrisome balance of payments. There will also be employment.

India has claimed that it is not seeking tax holidays in the Special Economic Zones (the Government may still give them, willing as it always seems to be to forego revenue!), arguing that the provision of land is incentive enough. They are quite right. The biggest problem the Indian business class faces at home is finding a place to set up their operations – there are regular and very serious agitations by farmers and tribal communities over land acquisition, with particularly intense conflict over Special Economic Zones.

Will the Sri Lankan public be overall winners or losers if this really is a quid pro quo for the CEPA? That is anybody’s guess.

Economics and politics are difficult to assess without information, and negotiations between the two countries are kept secret. Even documents that commit Sri Lanka to a particular course of action for generations to come are not shared before they are signed – sometimes they aren’t shared afterwards either. This means that vital details are often only discovered when it is too late. For example, while a phrase like investment protection seems quite harmless, in some cases protecting investments from expropriation has been interpreted by courts to mean that companies have to be compensated for any action that reduces their profits, even a general increase in the tax rate. A lot depends on the wording.

Indians have much more experience in this area, so it might be a good idea for Sri Lanka to spend a bit more time studying and a bit less time burning effigies of Karunanidhi.


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Latest comments

  • 0

    “Indians have much more experience in this area, so it might be a good idea for Sri Lanka to spend a bit more time studying and a bit less time burning effigies of Karunanidhi.”

    Karunanidhi, Subramanya Swamy, Thirumavalavan, Seeman, Nedumaran, Vaiko, …. &Co are playing their roles perfectly well in this long running drama enacted by Delhi.

    For the stupid Tamils and stupid Sinhalese it would take many years to unravel/fathom the plot of this Hindian/Indian Tragic Comedy.

    The corporate India, the Indian Imperial armed forces, Delhi mandarins, corrupt politicians and bureaucrats need to justify their existence and their extension by their power projection.

    The only country where they can demonstrate their power projection is Sri Lanka where the state is willingly get into trouble and sacrifice its own people in order to help India portray itself as a regional dominant power which is also aspiring power.

    In this process the Tamils and Sinhalese continue to compete and outdo each other at colossal cost to life and property.

    IPKF invaded Sri Lanka in 1987 with the support of LTTE and other sundry groups. MR said he fought LTTE for India. Subramanya Swamy recently agreed with him.

    When are these so called people of Sri Lanka going to work for the benefit of the island?

    These people cannot see beyond their noses because the Tamils and Sinhalese are irredeemably stupid.

    For India Sri Lanka is a Sinhala state of India and North East is part of Tamilnadu state.

    MR is a glorified Indian Viceroy to Sri Lanka.

    • 0

      “Karunanidhi, Subramanya Swamy, Thirumavalavan, Seeman, Nedumaran, Vaiko, …. &Co are playing their roles perfectly well in this long running drama enacted by Delhi”

      I highly doubt Seeman and Nedumaran, I understand the see-saw effect in politics and New Delhi will use it to bring a a balance in its policy, but it will not prefer Seeman or Nedumaran to even sit any where near the see-saw,”thol” thirumaran is a better choice.

      Personally I want srilanka to join India as a state, it will not solve all issues but the important ones will be solved and Veddas who are not so “native” can join their ancestors in Australia.

      • 0


        I may be bit thick and news and views rech me very late in the day, week or months.

        You say:

        “thol” thirumaran is a better choice”.

        Both Thiru and Vaiko used to be firebrands and thought to be friends of LTTE and its stupid leader VP. Particularly VP naively thought Vaiko was LTTE’s man in New Delhi. In fact Vaiko was Delhi’s man in LTTE.

        Seeman or Nedumaran are no different to Vaiko and Thiru. Both are playing different roles which are expected of them by Delhi.

        Soon Delhi will ensure that there would be no takers of LTTE’s stupid dream for Tamil Eelam.

        Seeman will be house trained by Delhi. He will be house trainned and become native of the Indian foreign policy.

        As usual you are ambly demonstrating your stupidity by stating:

        “Personally I want srilanka to join India as a state, it will not solve all issues but the important ones will be solved “

        You would like to create more problems for the people and particularly for my people.

        Corporate India, Corrupt Political India, Bureacracy, Naxalites, ………..etc are forcing my cousins in India out of their ancestral land in order to facilitate land and resource grab.

        It appears you would like the corporate India to join the land grabbing Tamils and Sinhalese in Sri Lanka.

        Beware you may end up asking permission from Delhi to perform your morning duties. It so happens it usually takes 50 or more years to review all such applications if you are so lucky.

        It seems you are living in a parallel universe just like teenagers:

        “Veddas who are not so “native” can join their ancestors in Australia.”

        We have evidence to prove my people have been living in this island for at least 30,000 years. The evidence is buried under the Earth. I am proud to say Australian abroginies are my distant cousins. Land grabbing Tamils and Sinhalese are now joining the Sudda in rows mainly sailing by their traditional Kallathonies to grab my cousins’ ancetral land.

        How soon can you vacate my ancestral island? When you go back to your mother country (India) please take your Sinhala speaking brothers and sisters with you where you can continue your unfinished war. (The stupid Tamils cannot live with stupid Sinhalese at the same time they cannot live without them either.)

        In the mean time the debate surrounding whether Australin Natives are my ancestors or not can wait.

        • 0

          Me too…I can’t wait, doing a degree in genetics and arguing about it during free time is great for my studies..

          Australian natives, Veddas and South Indians are all migrants from Africa and are not native to the respective land they now live..That being the case we are all “kallathonies”.

          For example, the Y-Mitochondrial DNA found in human DNA, that is inherited through the mother-lineage do not change since dawn of man kind, Y-mDNA found in natives of East Africa have been found in Madurai, Batticola, South of Srilanka and in Australia..

          So..when do we pack our bags and go back to Africa?

    • 0

      Good piece! India is a mess and it likes to export its messes as well> Its hard to buy the Indian story when one actually spends time in that country – its villages or cities.
      The fact is that the Indian coal power plant in Sampur has displaced many villages in Trincomallee. India is supporting the Rajapassa regime to land grab and impoverish people.
      Meanwhile Tamil Nadu is a joke. Just check out how people are still living under trees in northern lanka all because they are waiting for India to build houses. Compare the tsunami recovery operation when 100,000 houses were built in a short time and India’s foot dragging building houses for IDPs.
      Meanwhile, The Rajapassa regime has been happily sitting an watching the Indian housing fiasco in the north of Lanka, rather than making it a priority to get funds from donors (Govt. of Australia has offered to pay) since homeless people are going as boat people and seeking refugee status in Aussi!
      India has to be the biggest joke in the region – second only to China and Norichcholai!

  • 0

    your worst enemy could be your best friend.

    • 0

      What a shame Suz, accordingly VP would have been your best friend. It is said that your mouth may lie but not your tongue.

  • 0

    suz mourns:

    “your worst enemy could be your best friend”.

    Therefore you better keep your friends close and keep your enemies closer.

  • 0

    What a Hullabaloo, who owns what and where? In this day and age where the the world has shrunk to a Global Village, where most societies are mixed, some still striving to hold on to land under the belief that their ancestors owned it, to continue is only a pipe dream. It little matters where you reside now, as that is where your home is,in this world. How naive man is when they fight for land and country, which he forcibly tries to occupy, has to leave it behind the day he is called. Thereafter there is no assurance that his progeny will continue to own that land as they might be ejected by someone else. Then why fight for land as this whole world is for man to live in. Live and let Live.

    • 0

      gamini says:

      “Then why fight for land as this whole world is for man to live in. Live and let Live.”

      Hence let us abolish the immigration and land acts. When do we start?

      I would have supported you in an ideal world. As you know this world is populated by greedy men, men who have powers to abuse, have been abusing for many millenia.

      Therefore it is only reasonable for my people to demand the repartriation of all Kallathonies who arrived in my ancestral island including Vijaya’s descendants back to their native home lands.

  • 0

    Well said if only we try and understand to live in peace with our fellow-men without hatred and try to heal the wounds of war which had been created and the land ravished because two races of people the majority leaders deprived certain fundamental rights since after the 1960s that brought about this war as all people had lived for over a century in this paradise land in peace and unity helping and getting on well inbuilding the economy of this country, and to this day I have to say the war is over and the leading Politicians are doing nothing to bring about unity among the races, but hunger for power and wealth. As a sinhalese I am ashame of my race since we are not a united race,
    selfish and jealous of others and not happy to see others trying to do well and getting on in life. We have alot to learn from the Tamil race as they are a united people.

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