| Introduction
The Indo-Sri Lanka Free Trade Agreement (ISFTA), which was signed on 28th December 1998 and entered into force with effect from 1 March 2000, aims at promoting economic linkages between India and Sri Lanka through enhancement of bilateral trade and investment. The Agreement covers only trade in goods and requires the two countries to offer market access for each other's exports on duty free basis and concessionary tariffs. The ISFTA does not provide for elimination of non-tariff barriers.
Trade between Sri Lanka and India
01. Total Trade
Total trade between the two countries, which continued to grow over the years (vide table 1), increased from US $ 671.6 Mn in 2001 to US$ 2,316.2 Mn in 2006 recording a growth of 244%. For the first time in the history, the two way merchandise trade exceeded US$ two billion in 2006. It should be noted that the total trade, which exceeded US$ 2 billion, in 2006 was registered while recording a negative growth of Sri Lanka 's exports from US$ 559.3 Mn in 2005 to US $ 494.1 Mn in 2006.
Table 1
Trade behavior between India and Sri Lanka
Year |
Exports |
Imports |
Total Trade |
Balance of Trade |
2001 |
70.1 |
601.5 |
671.6 |
-531.4 |
2002 |
168.9 |
834.7 |
1,003.6 |
-665.8 |
2003 |
241.1 |
1,076.2 |
1,317.3 |
-835.0 |
2004 |
385.5 |
1,358.0 |
1,743.5 |
-972.5 |
2005 |
559.3 |
1,440.4 |
1,999.7 |
-881.1 |
2006 |
494.1 |
1,822.1 |
2,316.2 |
-1,328.0 |
Value Mn US $
• Balance of Trade
The balance of trade between India and Sri Lanka , which has always remained in favour of India , has also widened over the years. The bilateral balance of trade, which is in favour of India exceeded US$1 Billion (US$ 1,328 Mn) in 2006. This highest trade gap between the two countries in favour of India occurred as a result of the decrease in Sri Lanka 's exports to India in 2006against the increase in the Indian exports to Sri Lanka .
03. Exports
India , which ranked as the 16 th largest export destination of Sri Lanka in year 2000, emerged as the 3 rd largest buyer in 2003. Accounting for 7.2% of Sri Lanka 's total exports to the world, India remained the island's 3 rd largest buyer in the year 2006 after U.S.A. and U.K. At present, more than 70% of the total value of Sri Lanka 's exports enters India under the tariff preferences offered through the ISFTA. India , which overtook Japan as the largest supplier to Sri Lanka in 2001, continues to remain at the same position. Sri Lanka 's share of imports from India during 2006 accounted for 18.5 % of its total imports from the whole world.
04. Import / Export Growth
Despite the widening trade gap in favour of India , Sri Lanka has been enjoying higher export growth than that of India from 2002 to 2005 as could be seen from the Table 2. However, this pattern has changed in the opposite direction in 2006. In 2006, India has recorded 26.5% of export growth while Sri Lanka recorded a negative growth of 11.7%.
Table 2
Import / Export Growth
Year |
% change compare to previous year |
Sri Lankan Export |
Sri Lankan Import |
|
2001 |
25.9 |
0.2 |
2002 |
140.9 |
38.8 |
2003 |
42.7 |
28.9 |
2004 |
59.9 |
26.2 |
2005 |
45.1 |
6.1 |
2006 |
-11.7 |
26.5 |
Value in Mn US$
05. Import / Export Ratio
The pattern of Import / Export Ratio has been improving to the advantage of Sri Lanka for the last six years except for year 2006. (Vide table 3)
Table 3
Import Export Ratio
Year |
Exports |
Imports |
Import / Export Ratio |
2001 |
70.1 |
601.5 |
1 : 8.6 |
2002 |
168.9 |
834.7 |
1 : 4.9 |
2003 |
241.1 |
1,076.2 |
1 : 4.5 |
2004 |
385.5 |
1,358.0 |
1 : 3.5 |
2005 |
559.3 |
1,440.4 |
1 : 2.6 |
2006 |
494.1 |
1,822.1 |
1 : 3.7 |
Value in Mn US $
06. Exports from Sri Lanka
Spurred by the implementation of ISFTA in 2000, exports from Sri Lanka to India have increased rapidly over the years. However, for the first time since implementation of the ISFTA, Sri Lanka's exports to India dropped by 11.5% in 2006 when compared to the year 2005. Exports to India increased from US$ 42.3 Mn. in 2000, (the year ISFTA became operational) to US$ 559.3 Mn. in 2005. However, the value of Sri Lanka 's exports to India declined from US$ 559.3 Mn in 2005 to US$ 494.1 Mn. in 2006. This decline was mainly due to a significant decrease in exports of the two main products, namely, primary copper and vanaspati . Exports of vanaspati from Sri Lanka to India decreased from US$ 122.6 Mn. in 2005 to US$ 79.7 Mn in 2006, recording 35% negative growth. Sri Lanka 's copper exports to India decreased to US$ 49.1 Mn in 2006 from US$ 123.7 Mn in 2005, recording a 60% drop. Accordingly, decrease in value of copper and vanaspati exports to India in 2006 compared to 2005 amounted to US$ 117.5 Mn.
However, exports of several other items from Sri Lanka to India recorded increase in 2006 when compared with 2005. (Vide table 4) Items in the table 4 represent 44.5% of Sri Lankan total exports to India in 2006 and recorded 84% growth when compared with 2005.
Table 4
Major items, which recorded export growth
HS Code |
Description |
2005 |
2006 |
% Change |
|
|
7413 |
Stranded wire,cables,plaited bands&the like,of copper |
21.1 |
38.81 |
84 |
8544 |
Insulated(including enamelled/anodised) wire,cable |
19.6 |
33.15 |
69 |
151790 |
Other margarine |
12.9 |
23.18 |
80 |
68 |
Articles of stone,plaster,cement,asbestos & etc. |
6.8 |
22.69 |
234 |
40 |
Rubber & articles thereof |
9.0 |
19.02 |
112 |
090411 |
Peper(neither crushed nor ground) |
10.3 |
13.23 |
28 |
470790 |
Other,including unsorted waste&scrap paper/paperboard |
8.0 |
11.21 |
41 |
84 |
Boilers & machinery & parts |
8.6 |
9.02 |
4 |
520939 |
Other fabrics dyed(cotton) |
3.2 |
8.21 |
158 |
740811 |
-Copper wire. |
2.0 |
7.15 |
261 |
94 |
Furniture,lamps & fittings,illuminated name plates |
5.5 |
6.43 |
17 |
151110 |
Palm oils & its fractions(crude oil) |
5.2 |
5.54 |
6 |
740400 |
Copper waste & scrap |
0.7 |
5.34 |
687 |
282490 |
Other(lead) |
4.4 |
4.69 |
7 |
230990 |
Dog or cat food, put up for retail sale(other) |
0.0 |
4.31 |
- |
340290 |
Other(cleaning solutions) |
0.7 |
4.08 |
482 |
61TO 62 |
Articles of apparel & clothing accessories |
0.5 |
2.41 |
371 |
0902 |
Tea,whether or not flavoured. |
1.1 |
1.43 |
30 |
Total |
|
119.5 |
219.9 |
|
Value in Mn US$
Meanwhile, some Sri Lanka 's exports to India registered decreases in 2006. (Vide table 5). Products other than the two main items, (primary copper and vanaspati), which represented 22% of Sri Lanka 's exports to India in 2005 recorded a 40% negative growth in 2006.
Table 5
Major items, which recorded export decrease
HS Code |
Description |
2005 |
2006 |
% Change |
|
|
151620 |
Vegetable fats & oils & their fractions |
122.6 |
79.69 |
-35 |
7403 |
Refined copper and copper alloys, unwrought. |
123.7 |
49.06 |
-60 |
7605 |
-Aluminium wire. |
30.6 |
25.00 |
-18 |
090700 |
Cloves(whole fruit,cloves & stems) |
16.5 |
11.78 |
-29 |
441199 |
Other (fiberboard of wood) |
10.3 |
9.25 |
-10 |
294190 |
Other(antibiottics) |
22.7 |
7.29 |
-68 |
72TO 73 |
Iron or steel & its' articles |
15.0 |
6.93 |
-54 |
48 |
Articles of paper pulp, paper & paperboard |
6.1 |
5.31 |
-14 |
392620 |
Articles of apparel & clothing accessories(plastics) |
5.8 |
3.80 |
-34 |
7601 |
Unwrought aluminium. |
14.2 |
3.19 |
-78 |
Total |
|
367.6 |
201.3 |
|
Value in Mn US$
• Import from India
Out of total Sri Lanka 's imports from India , 100 products (at 6 digit level) accounted for 76% of total value in 2006. Large categories of imports from India are petroleum, iron or steel & its' articles, cotton, motorcycles and motor cars & other motor vehicles.
Approximately 15% of Sri Lanka 's imports from India in 2006 are subject to 0% duty on MFN basis, irrespective of the concessions granted under ISFTA. This category include the essential products such as petroleum and pharmaceutical products. Around 40 % value of Sri Lanka 's imports from India in 2006 does not enjoy duty concession under the ISFTA as these products come under the Sri Lanka 's negative list. This category includes products such as certain category of motor vehicles, main agricultural products and paper and paper products.
Therefore, around 55% which Sri Lanka import from India in 2006 does not receive FTA concessions.
Further, around 10% of Sri Lankas's imports of goods from India under concessionary terms, are raw / intermediary in nature and do not have production capacity domestically. The import duty applicable on these products is minimal (2.5%). This category include products such as clinkers, basic iron and steel and primary copper.
Among Sri Lanka 's imports from India , approximately 4% consist of capital goods such as vehicles for transport of goods, Agricultural tractors and tankers to facilitate production process in Sri Lanka .
In conclusion, out of the total Indian import portfolio, around 70% inflows are more or less either needed for economic development as intermediary or capital products or gain access to the Sri Lankan market due to its competitive advantage, irrespective of the limitations imposed under this agreement.
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