Closer Economic Ties with India is an Economic Disaster
Posted on April 7th, 2013

Dilrook Kannangara

The speech delivered by Asanga Abeyagoonaskera, Executive Director, Lakshman Kadirgamar Institute (LKIIRSS) at the Annual Asian Relations Conference Organised by the Indian Council for World Affairs contains many inaccuracies.

(http://www.island.lk/index.php?page_cat=article-details&page=article-details&code_title=75924)

On a superficial analysis, India has a fast growing economy; currently ranked 9th in the world in terms of the GDP and tipped to become the third largest. On the face of it, one may argue it is beneficial to enhance trade ties with India. However, upon closer examination it becomes obvious closer economic ties with India leads to the total destruction of the Lankan economy.

When CEPA (Comprehensive Economic Partnership Agreement) with India came up, a large number of Lankan businessmen protested against it for very good reasons. Their fears are justified. India can produce many goods Sri Lanka produces at a cheaper cost. Cost of land, labour, finance (capital) and entrepreneurship are cheaper in India than Lanka. In short, all factors of production are cheaper in India than Sri Lanka. This cost advantage can wipe out all these homogeneous industries in Sri Lanka leading to vast unemployment, larger trade deficit and social unrest. Before jumping into closer ties with India, the modus operandi of Indian traders in Lanka must be analysed. The conduct of Indian traders and investors in Sri Lanka is based on exploitation at present and hence it cannot achieve any good outcome.

Economics of Senseless Exploitation

Take for instance the operations of the Indian Oil Company operating through its local subsidiary “”…” Lanka Indian Oil Company. They provide 35% of petroleum needs of the country. Is it any beneficial to Sri Lanka? The answer is no. What if LIOC were not operating in the island? Would the sales of petroleum products fall by 35%? Absolutely not. Instead of LIOC, local entrepreneurs and Ceypetco will fill this vacuum. At present all the profits earned by LIOC leaves the island; highest paid employees of LIOC are Indians. This is an economic disaster. Sri Lankans have proven for decades they could profitably manage petroleum distribution, retaining all the profits in the island and employing only Sri Lankans. Thanks to the invasion of LIOC, local entrepreneurs are deprived of one of the most lucrative business opportunities.

Consider the data about tourist arrivals. 42% of tourists are Indians. But that does not say bulk of tourism revenue comes from Indian tourists. On the contrary, Indian tourists are thrifty spenders and contribute to a very small percentage of net tourism earnings. They also travel in Indian airlines depriving Sri Lanka any gain from their largest expense during their tour. A large number of Indian tourists come for short term employment. Their net contribution to the Sri Lankan economy is in the negative! Another cataclysm of Indian tourists is that while some low spending Indian tourists occupy hotel rooms and tourist destinations, it deprives high spending European tourists. Local tour operators and hotels know this fact very well.

Indian economic growth is supported by such exploitative operations. At the moment, the Indian economy grows at the expense of Sri Lankan economy (among other factors) and the economic prosperity and employment of Sri Lankans.

Allowing Indian investments into the country where there is a technological enhancement is good. However, within five to ten years Sri Lankans must master that technology and earn profit for themselves. Otherwise by definition the country gains nothing from the importation of such new technology.

Exploitation of Lanka’s Fisheries Resource by Indians

Another example of economic dealings with India is the exploitation of Lanka’s fisheries resource by Indians. No economic assessment is complete without looking into this ongoing pillage. South Indian fishermen habitually fish in Lankan waters. According to estimates, the cost to Lankan fishermen is around half a billion to one billion US dollars a year. If it stops, the Lankan GDP will have an instant boost of 1.7% which is immense by any measure.

However, what many an analyst fails to see is the socio-economic disaster that has befallen Sri Lanka’s war damaged north due to Indian exploitation. If Indians stop fishing in Lankan waters, fishermen from war-destroyed northern parts of the island will immensely benefit to the tune of half a billion to one billion US dollars a year. That will propel a remarkable economic resurgence in the north. However, given India’s track record of playing a zero sum economic game with all its smaller economic partners, this is unlikely to happen.

Leaving out this largest and most controversial economic relationship matter between India and Sri Lanka makes any economic analysis incomplete.

How to Make Lanka a Viable Commercial Hub?

Hambantota is at the forefront of turning the island nation into a regional commercial hub. It is going to take until 2020 to make the habour functioning as planned. Speeding up its development makes perfect economic sense. At the same time the Colombo port must be developed to achieve its fullest potential. Unfortunately, the Colombo port hasn’t expanded greatly over the last half a century despite a huge increase in his operations. Expensive land reclaiming work makes no commercial sense. Instead the Colombo port must be expanded into land through Colombo-11, Colombo-13 and Colombo-15. At the moment container yards are kilometres away from the port which makes it highly expensive to transport and handle containers multiple times. If commercial container yards are created adjacent to the port, it saves billions in transport cost and opens up new business opportunities. World class ports including Singapore, Sydney, etc. have large extents of land adjacent to ports dedicated to shipping and freight operations.

Sri Lanka Customs is the most corrupt and inefficient entity in the country. Since it is at the forefront of international trade, the impact on import-export trade is very high. The Ministry of Defence and Urban Development must take over the operations of Sri Lanka Customs to ensure efficient operations, national security, underworld and underhand activities are curtailed and fairness is maintained across the board.

Transport infrastructure even around Colombo City is appalling. More efficient train and bus services should be developed within the City and close suburbs and between main commercial centres.

Rapid growth of ICT industries should be further supported. It is unlikely India will share lucrative ICT business opportunities with Lanka where the profit stays within the nation. Sri Lankans must be entrepreneurial in competing against India.

Investing in Education for the Betterment of the Nation

Investing in education is not what should happen. There is no economic benefit in producing doctors working in Toronto, London or Sydney. Time value of money spent on their tertiary education, opportunity cost and the scant amount they remit back years later don’t add up. Investments in education must work for the betterment of the nation. Those who are based in the island but work in the Middle East or elsewhere provide valuable foreign currency as opposed to those who migrate. It is very difficult to restrict brain drain. However, it is possible to reduce it and channel more returns to the nation. Brain drain is not the same across the three main ethnic groups. Tamils have the highest brain drain followed by the Sinhalese. Muslims have the lowest rate of brain drain. Unfortunately more Tamils are in taxpayer funded universities than their ethnic percentage. In other words, Tamils (15% of the population) are over-represented in taxpayer funded universities. Ethnicity based university standardisation is the only way to overcome this grave economic injustice to the nation. At the moment Sri Lanka has fewer doctors per 10,000 persons than India, Pakistan, Bangladesh and the Maldives. It can only be resolved by introducing ethnicity based university standardisation that will be fair and equitable across all ethnic groups. It will naturally reduce brain drain as Tamils (highest brain drain) will not be over represented in universities and Muslims (lowest brain drain) will not be under-represented. It is a total waste in blindly investing in education without fixing the hole in the bucket.

Business and entrepreneurship must be included in the school curriculum from Year 6 onwards. It is said, the best businessmen are made in their early teens.

State Owned Commercial Enterprises

The difference between successful economies of Singapore and China as opposed to failed economies of USA and parts of Europe in the modern era is the participation of state entities in business. In Singapore, which is the world’s most versatile commercial hub, 60% of the GDP comes from state owned business entities. This is the right model for Sri Lanka. State sector must be the engine of economic growth along with the private sector through state owned commercially managed entities. Uttering the old mantra that the government cannot do business has been proven a pill for certain death. Reviving state entities is a must for national development.

 

 

10 Responses to “Closer Economic Ties with India is an Economic Disaster”

  1. Sunil Vijayapala Says:

    Dilrook – yes we agree that more we get involved with india it would be a disaster to lanka. they will have an economic strangle hold on us. being a former employee of petroleum corporation, i saw the fallacy in having indians involved in petroleum on lanka soil, let alone having access to big storage facility in Trinco, which is a very sensitive place military wise. true indian tourists are here to smuggle gold out of the country. this was conveyed to me not by a politician but by a senor immigration officer at the time of Lalith was there as the minister.
    Dilrook what we lack in this world,is a development on new political administration. while the world and lanka gamble on new economic administrations, still the world depend on old methods of mostly ‘British’ methods of political administration. the age old parliamentary system with govt whip and opposition whip etc. never think out side of the square. we got rid of the senate which was a redundant one. experimented on presidency, which is a disaster. we went on copying from others the provincial council administration which is a total disaster, as the lowest level politicos do the worst damage and they are the most corrupt and regimental. why can’t the political science people come with a new political formula for administering a country. economic pundits do try new methods but why don’t the political pundits do the same, i wonder? Once a new political formula is adopted it might work in this new highly complex world and the economic problems too would be solved once we get the foundation right.

  2. NeelaMahaYoda Says:

    People will say no thanks, it is Wishful thinking Wijayapala, We don’t have to reinvent the wheel in the administrative system in the country again. It will be disastrous for the nation to do some more experiments while we are still trying to come out from the JRJ’s experiment.

  3. Dilrook Says:

    Australia and China have agreed to replace the US dollar with Chinese Yuan in their trade. This is hugely beneficial to Australian and Chinese international traders are it removes an expensive and time consuming intermediary step. At the moment any trade between them should first go through buying US dollars and then paying the other. This artificially increases the demand for US dollars increasing its value. 25% of Australia’s exports go to China. This will soon make Yuan the second most popular currency in the world next the the US dollar.

    BRICS countries have already decided to phase out the US dollar in their trade amongst them.

    Petrodollar as it is known and other artificially propped up US dollar demands will simply collapse reducing the value of US dollars in coming years. May be it is a good idea for Sri Lanka to phase out the use of US dollars as a store of value. Our huge US dollar denominated borrowings will become less costly (easily repayable).

  4. Dilrook Says:

    Our export earnings are in US dollars. Its value will gradually reduce. It is time Sri Lanka diversify its export industry targeting USA. New export markets must be found in the East, Global South and Europe (Germany).

  5. Fran Diaz Says:

    Cold War #2 is the Money Market & Resources. Proceed with great Caution.

  6. Voice123 Says:

    I disagree – partly. We should increase trade and investment with India but not mainly India. We must diversify trade and investment with as many countries as possible, not just India. We must resist bullying from India to give them special treatment and also not allow them into strategic areas or allow spying particularly where there are Tamil Nadu interests or Tamil speaking IndiNs involved. They are, after all an enemy country. We must also diversify trsde to all parts of India. At present it is more than half with Tamil Nadu only. The risk of not gaving any trade or investment with India is that we lose economic leverage over India. They can bomb us into smothereens with no economic cost to them. Indians can be vain, spiteful people so we must insure against that.

  7. Ananda-USA Says:

    India has NEVER ACTED RESPONSIBLY with regard to Sri Lanka.

    First, it implanted terrorism, training, delivering, funding and supporting them.

    Second, India violated Sri Lanka’s sovereignty dropping food and supplies to the Tamil terrorists on the verge of defeat.

    Third, India military invaded Sri Lanka under the guise of “Peacekeeping” to protect its separatist clients, partition Sri Lanka and carve out an independent state for them.

    Fourth, India threatened Sri Lanka with permanent occupation and forced the 13th Amendment to the Constitution on Sri Lanka,

    Fifth, when India realized the Pan-Tamil agenda threatened its own integrity, it turned on its surrogates, and backed out of Sri Lanka when it could not cope with the Tamil rebels it had heavily armed, leaving Sri Lanka to cope with a much bigger terrorist problem.

    Sixth, when Sri Lanka was struggling against the well armed LTTE, it refused the Government of Sri Lanka arms to defend itself, and even prevented Sri Lanka from acquiring Chinese 3D radar systems to protect its air space.

    Seventh, after Sri Lanka Defence Forces finally eradicated the LTTE in May 2009, India re-launched its efforts to create a captive Tamil constituency in Sri Lanka, collaborating with Western Powers, and Tamils in India, Sri Lanka and the Sri Lankan Tamil Diaspora to DEMONIZE & LABEL Sri Lanka as guilty of war crimes.

    All of this is designed to REIPOSE Indian CONTROL over Sri Lanka, and forestall its RAPID POST-WAR DEVELOPMENT.

    INDIA is NO FRIEND of Sri Lanka …. during the last 30 years, and NOW!

    Sri Lanka should SCRAP the 13th Amendment, limit Indian involvement in Sri Lanka’s economy, trade, politics, and defense.

    GOSL: Get Sri Lanka out of India’s DEADLY EMBRACE NOW ….before it is TOO LATE!

    ………………….
    Gotabhaya reminds former Indian UN rep of his role in Colombo during 80s

    By Shamindra Ferdinando
    April 10, 2013, 9:16 am

    Had the then Indian government acted with responsibility, Sri Lanka wouldn’t have experienced a 30-year war, Defence Secretary Gotabhaya Rajapaksa said yesterday.

    People of all communities would have been still suffering horrors of war, if not for the eradication of terrorism in May 2009, following a three-year combined security forces campaign, the Defence Secretary said, noting that India could never absolve itself of the responsibility for creating terrorism here, though some of those directly involved in subverting Sri Lanka were blaming the Rajapaksa administration for the plight of Tamil speaking people here.

    He was responding to former Indian Permanent Representative to the United Nations Hardeep Singh Puri.

    Puri had been directly involved in the Indian operation against the then JRJ government in the run-up to the July 1987 Indo-Lanka Accord, Rajapaksa said, alleging that he was one of those aware of the Indian operations here.

    The Defence Secretary said that both Hardeep S. Puri and his wife, Lakshmi had been attached to India’s mission in Colombo during the tenure of J. N. Dixit as India’s High Commissioner here.

    Puri had now called for an investigation into what he called specific allegations of war crimes during the last 100 days of military operations. Those demanding accountability on Sri Lanka’s part for alleged atrocities committed during the last 100 days of the conflict were silent on the origin of terrorism here, the Defence Secretary said.

    Rajapaksa said that Puri should realize that the Indian intervention here had caused a major regional crisis, when Indian trained Sri Lankan terrorists raided the Maldives in early November 1988. The international community should consider a comprehensive investigation into the issue beginning with the Indian intervention, he added. India’s former Permanent Representative could help the investigation by revealing what was going on at that time.

    The defence Secretary pointed out that Dixit, in his memoirs published during his tenure as the Foreign Secretary, had acknowledged that arming Sri Lankan Tamil youth was one of the two major policy blunders of the then Prime Minister Indira Gandhi.

    Commenting on Puri’s allegation that he (Rajapaksa) wanted to do away with the provincial council system and criticism on recent attacks on Muslims in Colombo, the Defence Secretary said that the Indian official couldn’t be unaware of what the Norwegian mass killer Anders Breivik had said before he slaughtered 70 men, women and children. Breivik declared that he wanted the drive out Muslims out of Europe the way northern Sri Lanka was cleansed of Muslims during 1990. The Norwegian was referring to massacres carried out by the LTTE during President Premadasa’s administration.

    The Defence Secretary said that those critical of the Sri Lankan government should peruse former Indian Foreign Secretary Kanwal Sibal’s recent piece to India Today.

    The LTTE had used children as cannon fodder and Prabhakaran had forced the Tamil National Alliance (TNA) to recognize the LTTE as the sole representative of Tamil speaking people. The TNA couldn’t even finalize its candidates’ list for parliamentary polls without Prabhakaran’s approval, the Defence Secretary said, alleging some interested parties were reluctant to acknowledge the fact that Sri Lanka was a much better place today without the LTTE.

  8. Ananda-USA Says:

    India need to look inward

    Apr 10 (The Nation) India has made it manifest that it is not happy in the way the Sri Lankan government of President Mahindra Rajapaksa is treating the Tamil minority, following the defeat of one of the most virulent strain of terror-laced insurgency.

    The insurgency ended four years ago with the death of the deadliest terrorist of his times – Thiruvenkadam Velupillai Prabhakaran – at the hands of the Sri Lankan security forces.

    To castigate Sri Lanka, India is using the platform of UN Human Rights Commission in Geneva and the lead provided by a US sponsored resolution condemning it for committing anti-Tamil atrocities during and following the anti-insurgency operations.

    Brazenly interfering in its internal affairs, the Indian leadership at the Universal Periodic Review of Human Rights Group in Geneva, said that it hoped “for an early progress towards reconciliation (between majority Sinhalese and minority Tamils), the reduction of high security zones and the return of private land by the military.”

    India, nevertheless, has a long history of playing a double game of supporting the LTTE terrorists and then coming around to lend a helping hand to the counterinsurgency efforts by the Sri Lankan government to find strategic leverage to check the country’s pro- China leanings.

    Another factor that played out significantly in this charade is the strident Tamil nationalism in India’s southern states. It raked up separatism among the Tamils in Sri Lanka, who inhabit the northern and eastern parts of the island nation.

    Prabhakaran, the moving spirit behind Tamil separatism, remained the darling of India’s establishment, as well as the Tamil regional parties in the Indian south. In a close parallel to the manner of raising Mukti Bahini for operations in East Pakistan, India provided him with the space among the Tamil-dominated south along with ample material support to organise LTTE as a feared force, which turned the north and east of the country into no-go areas for the Lankan security forces.

    As the menace of separatism grew, New Delhi offered Sri Jayawardenapura Kotte an accord that allow the landing of Indian Peace Keeping Force (IPKF) under General Harkirat Singh to quell the insurgency. The accord signed in Colombo by Prime Minister Rajiv Gandhi and Prime Minister Junius Richard Jayewardene in July 1987 led to large-scale protests and the event acquired an iconic touch with the snapshot of a Sri Lankan naval rating, Rohana de Silva, attacking the Indian VIP with his rifle, while his companions in the honour guard stood at present arms.

    New Delhi’s ambitions to find a military toehold in Sri Lanka failed to materialise as the LTTE turned out to be a hard nut to crack, stretching the Indian expeditionary force to the limits of its endurance. The mission was called off in 1990 and when the last ship carrying the IPKF sailed from Trincomalee, the Indians had 1,555 men killed, 2,987 injured and had spent Rs 10 billion in the jungles of northern Sri Lanka on a pain-ridden wild goose chase. As a postscript, it should be pertinent to recollect that in May 1991, Rajiv, the mentor of Indian military misadventure in Sri Lanka, who was then on the verge of reclaiming his prime ministerial office was assassinated in a suicide attack by a LTTE suicide bomber in Tamil Nadu.

    No appraisal of Indo-Sri Lanka equation can be complete without bringing into reckoning the separatist ambitions of Tamil politicians of the Indian south, who harbour the ambition of returning to the grandeur of a Tamil nation state.

    Since the late 1800s, the history of Tamil Nadu is driven by an ambition among the Tamil people for self-rule over a state comprising Tamil Nadu, Kerala, Andhra, Karnataka, and the proposed states of Eelam in northeastern Sri Lanka and Malaya Nadu in plantation areas of central Sri Lanka.

    The strident political clout of the Tamil regional parties in the overall coalition based political scenario in India has given added weightage to the Tamil Nadu factor, which carries with it a history of campaigning for separatism and an impulse to interfere in the internal matters of Sri Lanka concerning the Tamil minority.

    Many analysts believe that the Indian accommodation of the Tamil card in the realm of local and regional politics has widened the fissures of separatism within India; many prophesying that Tamil Nadu could well turn out to be “Kashmir of the south”.

    Anyway, India played an active role in supporting and directing the operations of LTTE cadres, who have finally been tamed through a determined and bloody military campaign by the Sri Lankan Army. The Indian advisories to Sri Lanka, from the podium of international human rights watch organisations to conduct independent and credible investigation into allegations of civilian deaths during the period of counterinsurgency campaigning is totally uncalled for.

    Likewise its pontification to Sri Lanka to ensure welfare of the Tamils, which comprise 12 percent of the island’s population on the basis that they share close cultural and familial links with 62 million strong Tamils community in south India, is manifestly stepping on the toes of its small neighbour and a brazen violation of its national sovereignty.

    On its part, however, India has yet to come clean with its sponsorship of the LTTE terrorists and the grave human rights violations they perpetrated on innocent Sri Lankans. New Delhi also needs to acknowledge the role played by its intelligence agencies and the “Kazagham” parties that have embraced the separatist elements from Sri Lanka with open arms, providing them with logistics, weapons and safe sanctuaries to bleed their native land.

    On such occasions India also needs to look inwards and pledge to conduct transparent investigations into the human rights abuses in the Indian Held Kashmir (IHK). For one, numerous mass graves that dot the IHK landscape need to be forensically investigated to determine the identities of luckless individuals that were summarily disposed of by India’s armed forces, operating with impunity under the overarching umbrella of draconian laws.

  9. Ben Silva Says:

    Not only the Indians, others will be after our resources as well. We need to have desires for self preservation and compete. It is questionable, if Buddhist belief of giving up desires and terminating (mythical) birth/rebirth life cycle is wise. If we follow this path, then we would be digging our own grave and the signs are that we have been doing it, just like other Buddhists in the sulk route. The Indians have seen the danger and have acted wisely.

  10. sridaran Says:

    I see all the arguments as one sided. Sri Lanka and India have bi-lateral agreements for trade and investment . Two of Sri Lanka’s biggest Garment Conglomerates have set up shop in India and are operating large factories here. DAMRO has set up a chain of Furniture Showrooms across India and has become a big player – competing with the established Indian companies. Where there is a will – there is a way . No one is preventing Sri Lankan investors from setting up factories in India. I see SAMAHAN in supermarkets competing with Indian brands. I think our entrepreneurs should exploit the Indo SriLanka Free Trade Agreement and extract the benefits !!

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