Mineral fuel and its products and iron and steel are now among the top five items of India’s exports to Sri Lanka, following the free trade agreement (FTA) between the two countries. Mineral fuel and products have emerged as the largest export item of India to Sri Lanka, with more than 30% share in the total exports in 2006-07. Its exports registered an unprecedented increase from almost nil to $702 million in 2006-07.
Other top items of India’s exports to Sri Lanka are automobiles, pharmaceuticals, and cotton. Auto sector exports increased by more than four times to reach $335 million in 2006-07, constituting 15% of India’s exports to Sri Lanka. In the post FTA-period, India’s exports of iron and steel increased four times, that of pharmaceuticals by three times. However, the share of India’s cotton exports fell from 13% to 4%.
Major items of imports from Sri Lanka are vegetable and animal fat oils, copper products, electrical machinery, coffee, tea, rubber. India-Sri Lanka FTA signed in December 28, 1998 was operationalised from March 1, 2000 with phased implementation by both sides - for India 2003 was the last year for full implementation and for Sri Lanka it was March 2008.
The FTA covers 5,112 items for duty free or preferential treatment and taking into account the asymmetry between the two countries, Sri Lanka was accorded special and differential treatment.
The apex industry body, Ficci, said that the FTA has resulted in a win-win situation for both and “a pioneering attempt in trade liberalisation in South Asia.” India’s exports to Sri Lanka increased from $640 million in 2000-01 to $2.2 billion in 2006-07, with an annual growth rate of 25%. Sri Lanka’s exports grew from $45 million in 2000-01 to $470 million in 2006-07,with an annual growth rate of 47%.
The Ficci noted that Indian investment in Sri Lanka increased to $8.5 million, while Sri Lankan investment in India remained relatively very small.