India is our World Market
Posted on February 10th, 2024

By Rohan Abeygunawardena ACMA, CGMA

Recently Montek Singh Ahluwalia, the Indian economist and civil servant who was the Deputy Chairman of the Planning Commission of India from 2004 to 2014 was interviewed by Sanjaya Ariyawansa on Front Row of The Ceylon Chamber of Commerce.  As the Deputy Chairman, Ahluwalia carried the rank of a Cabinet Minister.

He explained the strategies and policies adopted and the kind of challenges India faced in building a strong economy.  According to Ahluwalia India was pretty behind the curve compared to other countries in East Asia in infrastructure development. Since resources available to the public sector were limited India introduced ‘Public Private Partnership in infrastructure development’ as a major change. The selection of the Private Partner was based on competitive bidding and an important criterion was the lowest capital subsidy the bidder was agreeable to accept or the highest revenue share the government would get from some other projects. There have been a lot of projects taken off the ground such as the construction of new terminals in ports, highway and railway projects, construction of airports, electricity generation projects, etc.

Sanjaya asked him, how Sri Lanka could strengthen its economic ties with regional and global partners. The eminent Indian economist pointed out that the most important regional ties (economic perhaps) are trade and investment. Since Sri Lanka is following an open policy and is located near the huge Indian market that continues to expand should see how it is to be exploited. It’s not only trading goods but there is a huge potential for services, especially for tourism. The emergence of a prosperous middle class in India that needs foreign holidays with the cheapest air transport from their home city to their destination is an opportunity for Sri Lanka with its excellent hotels, wonderful climate, and beaches. Sri Lanka at the moment attracts Indian tourists, but it’s only a fraction and there is much more potential, he said.

  • Soviet Model and Protectionist Policies

India was a country whose successive governments followed a Soviet model and promoted protectionist policies until 1991. (Sri Lanka too followed a similar policy during the sixties and early seventies center-left governments of Mrs. Sirimavo Bandaranaike, until the economy was opened in 1977 by J.R. Jayewardene’s government.) By 1990 India experienced a balance of payment deficits leading to an economic crisis. It created a situation where India had to implement various, not-so-popular measures, including the pledge of a significant portion of India’s gold reserves to the Bank of England and the Union Bank of Switzerland as collateral to secure much-needed foreign exchange to meet India’s debt obligations. With the collapse of the Soviet Union in December 1991 and at the end of the Cold War India decided to look at a different model.

India accepted the conditions imposed by the World Bank and IMF, which included structural reforms. As a result, the Indian economy was opened up to foreign participation in various sectors, including state-owned enterprises.

India adopted a broad economic liberalisation and indicative planning in which the state plays a strong directive (policies) role, contrary to a merely regulatory interventionist role, over a market economy. This is where Sri Lanka went wrong. Despite opening the economy in 1977 the interventionist role of the Sri Lankan government was weak.

  • India Today

The Indian economy witnessed a great year, closing 2023 with a GDP of US$ 3.73 trillion, GDP per capita at US$ 2,610, and a projected GDP growth rate of 6.3 percent against the global average of 2.9 percent. According to FORBES INDIA published on January 2, 2024, India is the fifth largest economy in the world behind the USA $27 trillion, China US 18 trillion, Germany US 4.4 trillion and India has pushed its former colonial master UK (with a GDP of US$ 3. 3 trillion) to the sixth place.

India’s economy boasts diversity and swift growth, fuelled by key sectors such as information technology, services, agriculture, and manufacturing. The nation capitalises on its broad domestic market, a youthful and technologically adept labour force, and an expanding middle class.

The Goldman Sachs Group, Inc. the leading global investment banking, securities, and investment management firm in New York predicts that India will become the world’s second-largest economy by 2075. Martin Wolf of FT suggests that by 2050, its purchasing power will be 30% larger than that of the U.S.

World Bank’s latest India Development Update (IDU) indicates that India continues to show resilience against the backdrop of a challenging global environment (October 3, 2023).

  • Opportunities for Sri Lanka

With such predictions from internationally recognised institutions and personalities, the potential for Sri Lanka to capitalise on the opportunities of a fast-developing India is immense. More fully just 38km away from the island, the Indian state of Tamil Nadu (TN) stands as the second-largest state economy in India with a GDP of US$294 billion contributing 8.8 percent to India’s GDP. TN’s nominal Gross State Domestic Product (GSDP) is estimated to expand to around US$ 2.6 trillion by 2047-48.

Sri Lanka and TN are culturally somewhat similar. Though there had been political differences in the past forget and forgive and join hands with them to rebuild our economy. Young people today have no borders and their outlook and aspirations are the same whether they are from Europe, America, or Asia, especially the middle class.

India, though produced almost all the products in the world the volumes are insufficient for the domestic market of over 1.4 billion people. They imported US$ 723 billion worth of items such as gems, precious metals, electrical machinery, and electronic equipment including computers, petroleum, and organic chemicals. Its main import partner is China, amounting to US$ 102 billion contrary to the belief of many Sri Lankans, both India and China follow an open policy in trading.  From Sri Lanka US$ 1 billion worth of goods were imported by India according to published statistics of 2022. These statistics provide the potential in the Indian market to us, Sri Lankans.

  • Why Sri Lankans Dislike or Suspect India

Sri Lankans especially the Sinhalese were always suspicious of Indians mainly because many personalities who decided the Indian foreign policy during the forties thought that Sri Lanka was part of India. For example the great Hindi film ‘Mother India,’ directed by Mehboob Khan and released in February 1957 there was a map showing Sri Lanka as part of India.

Some knowledgeable Sri Lankans feel that the father of the nation, D.S. Senanayake negotiated for Dominion status with Britain at the time of independence because of this fear. He also got into a defense pact with Britten and it was not abrogated when Sri Lanka became a Republic on the 22nd of May 1972 introducing a new constitution under Sirimavo Bandaranaike’s premiership.

It’s important to note that the circumstances surrounding defense pacts and alliances are often influenced by the geopolitical context of the time, and leaders make such decisions based on perceived national interests and security considerations.

  • Indian Help for Sri Lanka

However, India came to Sri Lanka’s rescue many times during the last 75 years. In 1971 when an insurrection broke out, India sent a platoon to guard Katunayake Airport and four frigates to guard the sea of Sri Lanka to prevent any external support from another country to the insurgents. India also helped Sri Lankan forces to overcome the LTTE terrorist threat mainly by providing intelligence.

Even in sports, India supported Sri Lanka to get ‘Test Status’ and admitted to ICC as a full member. Also in 1996 when several countries refused to send their teams to play in Sri Lanka in the World Cup matches due to LTTE terrorism and anti Sri Lankan propaganda, India and Pakistan formed a joint team that toured the island to enable our cricketers to get match practice. We became world champions in 1996.

Then in 2022 when we were facing the worst economic crisis in its history, India provided a facility of US$ 4.5 billion to ease off the situation.

  • Free Trade Agreement

Sri Lanka and India signed the India-Sri Lanka Free Trade Agreement (ISFTA) on 28th December 1998, as the first bilateral free trade agreement of Sri Lanka which came into force with effect from 01st March 2000. The Sri Lankan government should discuss with India and improve the terms in favour of Sri Lanka as Montek Singh Ahluwalia mentioned in his interview with Sanjaya. This is something that President Ranil Wickramasinghe, his cabinet of ministers, and all other political leaders should take note of.

For economic development Indians need electricity and Sri Lanka has already made arrangements with the Adani group to invest in solar power and to take over the excess electricity. A wise move for a country lacking funds for such a huge investment. Sri Lanka would continue to earn forejgn exchange by selling excess electricity to India.

  • India’s Neighbourhood First Policy

Indian Prime Minister Shri Narendra Modi’s Neighborhood First Policy, a core component of India’s foreign policy now, focuses on peaceful relations and collaborative synergetic co-development with its South Asian neighbours. This is also an opportunity for Sri Lanka.

Indian External Affairs Minister S. Jaishankar is all out to help us, addressing an event in India, he said, “My first advice to you, the next time you want to take a holiday, go to Sri Lanka. I’m serious. Please go to Sri Lanka. I say this to all of you.” – Daily Mirror 31st January 2024.

Let us as Sri Lankans capitalise on the opportunities offered by this giant economy of India in general and TN in particular.

We shall now change the famous song sung by the late Uma Pocha, ‘Bombay Meri Hai’ and say ‘Come to Lanka, Come to Lanka for a pleasant holiday.’

Leave a Reply

You must be logged in to post a comment.



Copyright © 2024 All Rights Reserved. Powered by Wordpress