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As discussed in my previous article, it is important to evaluate the impact on Sri Lanka of signing the Economic and Technology Cooperative Agreement (ETCA) with India. Being in close proximity to a large and rapidly-growing economy and zonal leader like India, it is imperative to perceive ETCA as a growth potential, amidst all the controversies it has generated in the country.

One significant recent development is that Sri Lankan exports to India have been rising in the past few years. The large Indian population is importing more of our products, and India is our third largest export destination. Signing ETCA, therefore, would strengthen bilateral trade between the two countries by increasing demand for our exports and diversifying our export base. Not signing the agreement will make us lose the huge market potential of India.

Imports have also risen from 19 per cent in 2010 to 21 per cent in 2014. Consequently, there has been a large and expanding trade deficit between India and Sri Lanka. The trade deficit of US$ 2, 096 million in 2010 increased sharply to US$ 3, 398 million in 2014. Critics argue that this trade gap will be further widened if we sign ETCA.

economicsFacts reveal a different story. Experts say that a large amount of Sri Lankan exports enter India on preferential terms, while only a small percentage of Indian imports enter Sri Lanka on preferential terms under the existing Free Trade Agreement with India. This means that it is the internationally-cost-effective imports which enter the country. If not for cheaper Indian merchandise, our import bill would be much higher than at present.
However, it should be noted that state governments in India play a key role with regard to trade with other countries, and the central government may not be that powerful in their decisions. So, with non- economic issues which some states like Tamil Nadu have with Sri Lanka, along with inefficient customs administration in India, ETCA may not give us the expected benefits. Therefore, a rules-based approach with negative/ positive lists, along with a proper dispute settling mechanism, are a must in addressing the above issue when signing the agreement.

Similarly, due to the huge indebtedness and tight finances faced by Sri Lanka at present, entrepreneurship has become a major concern as a source of funding for government. The ETCA gives an ideal opportunity to boost these private investments, while also creating an emerging middle class. What is important here is that ETCA would strengthen Foreign Direct Investments (FDIs) by both private individuals and private institutions, which would in turn fill the presently high savings and investment gap. At a time where commercial borrowing is not feasible for a country like ours, FDI is the key in achieving our economic growth targets.

Not only the inflow of FDIs, but ETCA would eventually lead to the exchange of knowledge and technology between the two countries, which realistically speaking, are comparatively superior to Sri Lanka. There is enough labour in India even for low level jobs and there are large numbers who are educated and competent. With this labour market condition, it will undoubtedly encourage local industries to improve their performance, and local workers to polish up their skills and focus on continuous learning, so that they are not left behind in the competition.

In the present context, emerging economies play a key role in the global economy. Letting go of a bilateral trade agreement with an economic giant like India will add to the list of missed opportunities this land has encountered over its history! As mentioned in my previous article, it is the small countries that benefit most when they sign trade agreements with large neighbours as for instance, New Zealand benefitting much with her trade agreement with Australia. Therefore, if proper studies are conducted and as long as principles of non-reciprocity, special and differential treatment are sustained, signing ETCA would be of benefit to Sri Lanka.

ETCA should not be analysed based on narrow-minded political agendas of institutions, particular professions and individuals. It should be evaluated seriously as a means of getting benefits to the overall Sri Lankan economy, in terms of economic indicators like exports, FDIs, incomes and employment.

ETCA