India’s economic growth benefits neighbouring states like Sri Lanka

Current economic policies adopted by Prime Minister Narendra Modi are having a positive impact not only on India but also on its neighbour Sri Lanka, write Srimal Fernando and Megha Gupta for South Asia Monitor.    
Jun 27, 2018
By Srimal Fernando and Megha Gupta
India, the largest economy in the South Asian region, is predicted to grow at 7.3 percent GDP according to the World Bank. Current economic policies adopted by Prime Minister Narendra Modi are having a positive impact not only on India but also on its neighbour Sri Lanka.
In the past four years, bilateral trade between the two countries has increased to about USD 4.38 billion. This has had a direct impact on the domestic Sri Lankan market. Since the Indo-Sri Lanka Free Trade Agreement (ISFTA) was signed, the bilateral relationship between the two has strengthened to increase the trade volume in several areas.
Intermediate goods, transportation and capital goods imported from India comprises over 70 percent of bilateral commerce. This directly benefits Sri Lanka’s industrial output. Since India’s economy is growing swiftly, with around a 300 million middle class, the tourism sector of Sri Lanka is seeing improved prospects with an increasing number of Indian tourists. The number of middle class tourists visiting Sri Lanka from India has surpassed more than 300,000 annually which, in turn, is helping the island nation’s hospitality industry. Additionally, the visa on arrival system is making it easier for tourists to travel to Sri Lanka, thus aiding their tourism sector. In recent years the two nations have opened their aerospace; Sri Lankan airlines fly 126 flights per week to 14 cities in India.
Port and shipping are other areas which benefit both nations mutually, and Colombo and Mumbai are some of the busiest handling ports in Asia. Colombo alone handles 43 percent of the trans-shipment cargo of India, directly benefiting Sri Lankan revenues. Hence, a surge in the Indian economy will lead to an increase in the volume of cargo cash transactions and services related to it between India and Sri Lanka, thereby creating more jobs for the locals and expatriates of these countries.
Oil and gas are important energy consumption requirements for Sri Lankans. To meet this requirement, the Lanka Indian Oil Company (LIOC) plays a vital role. A subsidiary of the Indian Oil Corporation, LIOC operates 15 oil tanks out of 96 at the China Bay Trincomalee oil storage facility. Further, LIOC operates around 100 pumping stations throughout Sri Lanka.
In the sphere of transportation, India has contributed to raising railway connectivity in Sri Lanka, including relaying of the Northern railway tracks and also in modernizing the existing signaling system of the Southern railway lines. Vehicles imported from India are comparatively more affordable for Sri Lankan middle class consumers than importing them from elsewhere.
Ashok Leyland, Tata and Mahindra vehicles are widely used in Sri Lanka, especially in rural areas. Setting up Indian vehicle assembly plants in Sri Lanka or joint venture enterprises could further reduce the cost of the vehicles.
Over the past few years, Indian and Sri Lankan companies have established various business ventures together to promote prosperity and to create sustainability. Sri Lankan textile companies such as MAS Holdings and Brandix have set up factories in India, providing jobs in both countries.
The Indian government has positively contributed to various socio - economic causes to uplift Sri Lanka’s rural base, especially in the North and East provinces. India has provided over USD 2.5 billion in aid and credit line facilities to bring about self-sustainability in these regions.
In the post war period in 2010, India pledged to build 50,000 housing units for the conflict - afflicted people. Only if India continues to make positive growth will it have a direct constructive impact on Sri Lanka.
Even though Sri Lanka has achieved higher literacy levels, it is yet to increase the entry of students going to universities for under graduate and Masters degrees. Indian public and private institutes have provided adequate facilities for many Sri Lankan students to pursue higher education. Affordable and standard education provided by the Indian institutes is providing an opportunity to Sri Lankan students to travel to their neighboring country instead of to the West.
Being among the closest neighbours prospering with the growth of the Indian economy, it is time for Sri Lankan policy makers to think beyond and make trade transactions smoother and more business friendly for both these countries.
To reduce the gap between the rich and the poor, to make things affordable, and to bring down inflation in Sri Lanka, it is important for the trade relationship between India and Sri Lanka to grow, to allow Sri Lanka to become an economic wonder of Asia.
(The authors are associated with the Jindal School of International Affairs, India. Fernando can be contacted at

Leave a Reply

Your email address will not be published. Required fields are marked *

Tweets about SAMonitor
SAM Facebook