By: Staff Writer
February 02, Colombo (LNW): President Anura Kumara Dissanayake (AKD) and Indian Prime Minister Narendra Modi recently reached a 34-point agreement aimed at strengthening economic cooperation between Sri Lanka and India. Among the key aspects discussed were trade, investment, and financial transactions, laying the groundwork for a closer economic partnership.
One of the most significant agreements is the revival of discussions on the Economic and Technological Cooperation Agreement (ETCA), which had previously stalled.
The leaders also agreed on facilitating direct transactions between the Indian Rupee (INR) and Sri Lankan Rupee (LKR), reducing dependency on the US dollar.
Additionally, India pledged to invest in sectors that would boost Sri Lanka’s export potential. These elements are interconnected and are expected to be central to the renewed ETCA negotiations.
Sri Lanka reaffirmed its commitment to restarting ETCA discussions, seeing it as a pathway to improving trade relations between the two nations.
This decision was highlighted during bilateral talks between AKD and Modi, with both leaders acknowledging the success of the India-Sri Lanka Free Trade Agreement (ISFTA).
They expressed the need to build on this foundation by advancing ETCA negotiations, as stated in the India-Sri Lanka Joint Statement of Fostering Partnerships for a Shared Future.
Negotiations on ETCA have gone through 13 rounds, with talks resuming in November 2023 after a five-year break. The most recent round took place in January 2024, and officials anticipate finalizing the agreement by the 2025 financial year.
ETCA, an extension of the ISFTA signed in 2000, is expected to enhance trade and investment flows between the two countries.
A senior official involved in the discussions emphasized that Sri Lanka stands to benefit from integrating into India’s supply chain, leveraging its strategic location and resources.
ETCA presents new opportunities for Sri Lankan businesses to expand into India’s vast market, allowing for diversification and growth.
Additionally, cooperation in technology sectors like IT and telecommunications could facilitate skill development, innovation, and knowledge transfer.
This agreement is intended to replace the Comprehensive Economic Partnership Agreement (CEPA), which was proposed in 2003 under the Chandrika Bandaranaike Kumaratunga–Ranil Wickremesinghe administration but never materialized.
The ISFTA, a precursor to ETCA, was Sri Lanka’s first free trade agreement, signed in December 1998 and fully implemented by March 2000.
However, it has resulted in a substantial trade imbalance. Over 15 years, India’s exports to Sri Lanka amounted to $4,023 million, while Sri Lanka’s exports to India were only $625 million, according to Dr. Naresh Bana, Vice Chairman of the Indo-Sri Lanka Chamber of Commerce and Industry.
Despite the economic benefits ETCA promises, it has faced strong opposition. Critics argue that increased competition from Indian professionals, particularly in IT, could threaten Sri Lankan small-scale industries and technical service providers, potentially impacting local employment and wages.
Additionally, concerns have been raised about a growing trade deficit, which, if not carefully managed, could lead to economic instability. Skeptics also fear that closer economic ties might compromise Sri Lanka’s economic sovereignty and limit its independent policy-making capacity.
The success of ETCA hinges on addressing these concerns while ensuring a mutually beneficial agreement. Transparent negotiations with protective safeguards will be essential to maintaining a balanced trade relationship that fosters economic growth without undermining national interests.
