Ranil Wickremesinghe, the president of Sri Lanka, recently traveled to India and left with an ambitious plan for diplomatic communication. The visit was another stage in India’s new collaboration with Sri Lanka, which it started in 2022. However, in order to forge stronger economic ties, supply stores, a comprehensive free trade agreement, and increased central banks assistance are all necessary.
The joint statement & nbsp released following the meeting on July 21 made it clear that the economic aspect of the bilateral relationship was highlighted. In the past, & nbsp, disputes over fisheries, India’s security concerns over China’S role in Sri Lanka, and the unresolved issue of ethnic reconciliation have prevented bilateral economic cooperation. However, after Sri Lanka’s economy defaulted on its foreign debt in April 2022 and descended into an economic crisis, India played a crucial” neighborhood first” role with US$ 4 billion andnbsp.
This moment, it’s not just a government-to-government scheme. The agreement promotes joint ventures with Sri Lankan businesses as well as private sector investment from India. The three areas that are the focus of this association are logistics, power, and tourism. Improved local logistics, the construction of slots in Colombo, Trincomalee, and Kankesanthurai, ferry services between American and Sri Lankan ports, as well as improved air connection between the two nations are all examples of this. These are firm opportunities that support the movement of persons to persons.
Bilateral power commitment and nbsp are important. The most significant initiatives include plans to join the electricity grids of India and Sri Lanka with an oil pipeline. India now has energy and oil pipeline connections with Bangladesh and Nepal, giving Sri Lanka a model to follow. India is an importer of power, but it also has a world-class and enormous oil refining and control market.
Due to India’s economies of scale, Sri Lanka does receive cheaper fuel if it is connected to the American oil grid. Gas shortages in Sri Lanka, as seen in 2022 andnbsp, may be lessened as a result of reduced foreign exchange reserves. If American oil can be purchased in Indian rupees, trade credits may be made easier and exchange costs may decrease.
It’s possible that connecting the energy systems will change everything. Due to its reliance on locally produced fuel and native expertise, India’s power is among the most affordable in the world. Sri Lanka can create its own wind energy trade potential and overcome electricity shortages with the help of dependable and economical American power. The American power grid can therefore receive this clear but continuous electricity.
Sri Lanka is also looking to take advantage of India’s renowned, open-source online public infrastructure, which enables the delivery of crucial government services online. Electronic payment in pounds can be used for small businesses and foreign visitors in Sri Lanka by using the Indian Rupee to negotiate diplomatic trade and operationalize India’s Unified Payment Interface.
The take-off has started, but three additional business-oriented alignments must now be pursued in order to fully integrate diplomatic deal.
Integrating Sri Lanka into India’s developing supply chain and nbsp model comes first. China pays higher hourly pay than South Asian nations. Southern Asian companies, like China, are adaptable and eager to work with smaller orders. South Asia today needs to reduce the high trade costs that are already impeding business growth by pursuing greater trade openness, enhanced regional trade and transportation infrastructure, and streamlining behind-the-border regulations. South Asia may create local commercial clusters and trade processing zones along a well-oiled supply chain once reforms are put into place.
Sri Lankan businesses looking to expand should invest in North American states. Companies like Brandix, Dilmah, and John Keels Holdings should invest in the textile industry, drink and commerce, respectively. By enhancing investor marketing, liberalizing FDI entry regulations, and removing dark tape through digitization, India and Sri Lanka may actively market diplomatic foreign direct investment flows.
It would be crucial to start early negotiations on the Economic and Technology Co-operation Agreement to encourage local rules-based commerce and FDI. By implementing so-called 21st century industry rules, the goal should be to promote deeper integration through supply stores and trade in services.
Both nations then realize they stand to gain more from trade facilitation measures and nbsp. Investments in infrastructure and transport, a proposed property bridge, logistics, and governmental harmonization are among them. To stop backlash from losing industries and small businesses in Sri Lanka, negotiations must take into account the imbalance between the financial strengths and nbsp of the two countries.
It’s also essential to strengthen core bank assistance. It is necessary to hold regular meetings between Sri Lankan and Indian central bank officials as well as implement an earlier economic crisis reminder technique. Following the Asian Financial Crisis of 1997, ASEAN adopted the a & nbsp, or mutual monitoring mechanism, to identify early warning signs, warn others of impending crises, and support one another among its members. A bilateral agreement between India and Sri Lanka has the potential to become regionalized throughout the rest of South Asia.
An enhanced International Monetary Fund ( IMF ) Capacity Building program is another area. Delhi is home to the South Asian IMF Training and Technical Assistance Center for Economic Capacity Building. It can be expanded to offer more instruction in economic stability and economic control with Indian assistance. Local stability depends on such institutional mechanisms.
The Modi-Wickremesinghe negotiations laid the groundwork for a new way in Sri Lanka and India based on stronger business-to-business relations promoted by both governments. The & nbsp, with experience in East Asia, demonstrates that market-led regionalism and the nrbp is the practical course of action to achieve prosperity and growth.
Manjeet Kripalani serves as Gateway House’s executive director, and Ganeshan Wignaraja is a faculty brother in finance and trade there. East Asia Forum previously published this piece, which has been republished with Creative Commons permission.