The India-Sri Lanka FTA, which was completely implemented by March 2008, has increased the bilateral trade by 4 times since 2000, according to a FICCI study. FICCI study pointed out that the total bilateral trade increased by 4 times in the post-FTA period to reach $2.7 billion in 2006-07 from a mere $685 million in 2000-01. The FTA implementation period for India was from 2000 to 2003, whereas for Sri Lanka, the implementation period was 8 years i.e. from 2000 to 2008.
FICCI study also observed that India has taken a lead over Japan in the post-FTA period in terms of share in Sri Lanka’s global imports. In 1999, India’s share was 9.5% in Sri Lanka’s imports and it was the second largest importer after Japan. But in 2005, India achieved a share of over 17.3% in Sri Lanka’s imports and became the largest importer.
The FICCI study further pointed out that prior to the FTA the bilateral trade between India and Sri Lanka grew by just 10% per annum in the seven years period i.e. from 1993-99. However, the FTA really accelerated the trade flow between the two countries and it grew by over 27% in the post-FTA period i.e. from 2000 to 2006.
Sri Lanka has also improved its presence in Indian market in the post-FTA period. In the pre-FTA period, Sri Lanka was ranked at 61 position in India’s global imports, observed FICCI study. Although, the share of Sri Lanka in India’s global imports was not significant but its position improved from 61 to 34 by 2006-07.
In terms of composition of bilateral trade, some important changes occurred in the post-FTA period, pointed-out FICCI study. In 1999-00, cotton, automotive, vegetables, pharmaceuticals and machinery and appliances were the top 5 items of Indian exports constituting around 50% of our total exports to Sri Lanka. However, in 2006-07 mineral fuel and iron & steel replaced vegetables and machinery, in the top 5 items of exports to Sri Lanka.
Around 30% of our exports to Sri Lanka constituted mineral fuels in post-FTA period. Exports of mineral fuels registered an unprecedented increase from almost nil in 1999-00 to $702 million in 2006-07 to Sri Lanka. Similarly, iron & steel increased by more than 4 times in the post-FTA period. Imports also witnessed a change in composition in post-FTA period. Vegetable/animal fats & oils became the largest importing items of imports from Sri Lanka replacing tea and coffee in the post-FTA period, highlighted FICCI study.
FICCI study further said that not only trade but even investment flows also increased significantly as a result of FTA. FTA provided an opportunity for Indian investors to export from Sri Lanka to India at zero duty and also to import raw materials in Sri Lanka at zero duty. From April 1996 to March 2002, India’s total FDI in Sri Lanka was only $62 million. It ratcheted up to $450 million as a result of FTA by 2004, observed FICCI study.
