India and Sri Lanka are forging closer economic ties in a new partnership initiated in 2022. Sri Lankan President Ranil Wickremesinghe’s recent visit to India concluded with an ambitious agenda for bilateral connectivity. While security concerns, fisheries disputes, and ethnic reconciliation have hindered economic cooperation in the past, India’s support for Sri Lanka during its economic crisis has laid the groundwork for a more fruitful relationship.
A Comprehensive Partnership
The joint statement issued after the meeting highlighted the economic aspect of the bilateral relationship. This partnership goes beyond government-to-government collaboration, encouraging investment from India’s private sector and fostering joint ventures with Sri Lankan companies. The focus areas of this partnership are logistics, energy, and tourism, which not only boost business investments but also facilitate people-to-people movement.
Enhancing Logistics and Connectivity
Improving regional logistics and developing ports in Colombo, Trincomalee, and Kankesanthurai are essential components of the partnership. Additionally, ferry services between Indian and Sri Lankan ports and enhanced air connectivity will further strengthen trade and tourism between the two countries.
Bilateral Energy Engagement
Energy engagement is a significant aspect of the partnership. Proposals to build an oil pipeline from India to Sri Lanka and to connect the two countries’ electricity grids are currently being discussed. India’s expertise in oil refining and processing, coupled with Sri Lanka’s potential to benefit from cheaper fuel and overcome electricity shortages, make this collaboration mutually beneficial.
Leveraging Digital Infrastructure
Sri Lanka aims to leverage India’s highly regarded open-source digital public infrastructure to deliver essential government services digitally. By settling bilateral trade in Indian rupees and utilizing India’s Unified Payment Interface, digital payments in rupees can be used for small businesses and visitors in Sri Lanka.
Integrating Supply Chains
To truly integrate bilateral trade, Sri Lanka needs to be integrated into India’s emerging supply chain framework. By pursuing trade openness, improved regional trade and transport-related infrastructure, and streamlined behind-the-border regulations, South Asia can develop regional industrial clusters and export processing zones along a well-functioning supply chain.
Promoting Foreign Direct Investment
Encouraging Sri Lankan firms to invest in South Indian states and actively promoting bilateral foreign direct investment flows are crucial. By improving marketing efforts, liberalizing FDI entry regulations, and cutting red tape through digitization, both countries can attract more investment and foster economic growth.
Promoting Regional Rules-Based Trade
Resuming talks on the Economic and Technology Cooperation Agreement to promote regional rules-based trade and FDI is essential. A high-standard trade deal that embraces 21st-century trade rules will facilitate deeper integration through supply chains and trade in services.
Central Bank Cooperation
Improved central bank cooperation is vital for economic stability. Frequent meetings between central bank officials of India and Sri Lanka, as well as the establishment of an early warning system for economic crises, are necessary. This bilateral system can serve as a template for the rest of South Asia.
Strengthening Institutional Mechanisms
Enhancing the International Monetary Fund (IMF) Capacity Building program in South Asia provides an opportunity for increased training on macroeconomic management and financial stability. Such institutional mechanisms are crucial for regional stability and prosperity.
The recent talks between Indian Prime Minister Narendra Modi and Sri Lankan President Ranil Wickremesinghe have laid the foundation for a new direction in India-Sri Lanka relations. By focusing on closer business-to-business ties and learning from the experiences of East Asia, both countries can achieve prosperity and sustainable growth. DHPL Travels is excited to witness this transformation in the India-Sri Lanka partnership.
Ganeshan Wignaraja is a Professorial Fellow in Economics and Trade at Gateway House. Manjeet Kripalani is the Executive Director of Gateway House.