Dangers of India's business in Sri Lanka
With the dawning of peace upon a nation that withstood 3 decades of terror, Sri Lanka is looking towards development & aiming at economic revival. While lobbying foreign investors to invest in Sri Lanka, it is no surprise to see India engage its neighbor – this time from the economic front.
Indians are no strangers to Sri Lanka & with peace Indian companies are keener than ever to put their foot into Sri Lanka through various development projects in the goods & service sectors as well as through Indian labor into Sri Lanka. Most of these projects have had land identified & Government approvals already obtained much of the time without taking into consideration the opinions of country-proud businessmen or professionals.
Should we then be surprised that over 50% of Indian investments in SAARC countries are located in Sri Lanka. Of these joint ventures 54% are with Sri Lankans & located in Sri Lanka. Principle sectors attracting Indian investment in Sri Lanka are steel, rubber, cement, power & energy, oil exploration, production, telecom, real estate, tourism, computer software, IT training & other professional services. The better question is to wonder what sectors Indians have not ventured into in Sri Lanka!
India is undoubtedly Sri Lanka’s largest trading partner & India desires to maintain that status quo & would not like it being enjoyed by any other nation. This is evident in India’s competition with China. While Sri Lanka understands the power of both these nations, it must be reiterated that Sri Lanka does not want to nor desires to compete with either except to continue the friendly ties that ought to exist with mutual respect. India also is Sri Lanka’s largest source of imports & Sri Lanka’s fourth largest export destination. In 2008, foreign direct investment to Sri Lanka was $889m & $126m came from India.
Indian companies had been operating in Sri Lanka post-war but the present numbers have certainly doubled. Previously Indian companies operating in Sri Lanka included John Keells Institute of Information Technology, CEAT-Kelani Associated Holdings, Mackwood Infotec, GTB Colombo, Ceylon Ambuja Cement, Taj Lanka Hotels, Bensiri Rubber Products. Asian Paints & Ceylon Glass Company.
Post-war means a boom for the construction industry & Indians desire to secure a large chunk of investments being given to foreigners.
Lets take a look at some of these projects taking shape in Sri Lanka.
Larsen & Toubro is constructing a commercial complex which is to cost US50m.
Lalith Gangadhar Constructions is constructing residential villas outside Colombo. Power Grid Corporate India, National Thermal Power Corporation, Lanka India Oil Corporation (Lanka IOC), Cairn Lanka, Lanka Ashok Leyland & Mphasis have all drawn out plans with Sri Lanka. Similarly, Cairn India has begun a seismic survey in Mannar Basin. Mphasis the Indian IT services company has set up a facility in Sri Lanka that aspires to hire 2000 professionals.
Compared to 1990 when only 12 Indian projects with a total investment of LKR 177 million, today there are over 100 Indian companies doing business legally in Sri Lanka, this number is likely to increase in view of the other activities Indians with Sri Lankans are involved in illegally. Indians have so far invested $400million in Sri Lanka & the additional investments are said to be around $300million. The energy projects are amounting to USD1billion & the project will involve the installation of power transmission lines between India & Sri Lanka to pave the way for eventual trading of electricity between the two countries & linking power grid in Tamil Nadu to the transmission system in Sri Lanka. NTPC, India’s biggest power company is in the process of signing a jv with the Ceylon Electricity Board to set up a 1000 mw coal-based power unit with an investment of US500million in East Trincomalee. Some investments are however somewhat questionable & certainly advises signatories to be cautious about what they are signing & the need to look at long term repercussions first before committing a whole country & its people just for political mileage. Sri Lanka should be in no hurry to develop if it is going to be at the cost of loosing our sovereign status!
Already India has a presence in Sri Lanka in terms of lubes, bunker & fuel retailing & India is attempting to make further inroads. The tie up with Lanka Ashok Leyland is likely to lead to the sale of 1300 vehicles sooner than later. No sooner India realized the Government was opening highways, India was quick to capture the market by making available commercial vehicles to transport construction equipment. With the end of the war, India has also pledged to build 50,000 houses for IDPs in the North of Sri Lanka & RPP Intra Projects has been awarded USD11.3m pilot project to build the first 1000 houses.
Every step Sri Lanka is taking, India is quick to ensure its companies are present vis a vis investment.
In the arena of agriculture too Indians have made in roads. Sri Lanka does not domestically produce enough raw materials for the production of 3 lakh tonnes of vanaspati. Palmoil is imported from Malaysia or Indonesia duty free (FTA under rules of origin & value addition) & since India announced zero duty on crude oil imports, Indian businessmen have lobbied the Indian Government to allow import of refined palmolein from Sri Lanka at zero-duty. Ultimately Indian businessmen in Sri Lanka will purchase refined palmolein from Malaysia & bring it to India at zero duty & no one will know the oil came from Sri Lanka!
India is assisting with reconstruction by extending grants to build railway projects. Various business associations are also frequently visiting including those from different Chambers in India. An MOU was signed after a visit by the Federation of Chambers of Commerce & Industry of Sri Lanka with the Indus Entrepreneurs (TIE). Businessmen from Kerala were invited to invest in agro processing units, educational institutions & even setting up of universities.
Another area that Sri Lanka enjoys potential profit is in the Tourist industry & Sri Lanka is targeting 2.5m tourists by 2016.
Indian investments are eyeing all areas in Sri Lanka. Even Sri Lanka’s footwear industry is to be assisted by India since the bulk of raw materials are imported from Chennai. This means Sri Lanka is likely to grant further tax concessions in exchange for skills building & training for the local footwear & leather industry. Demand for designer footwear in Sri Lanka is an area that Indian sellers are planning to exploit.
Indian banks have also opened in Jaffna in early January this year while in May India & Sri Lanka signed a MOU on Bilateral Air Services between the countries revising the original agreement signed in 1948. The agreement will entail more flights in & out of each country destination. Already Sri Lankan Airlines operates 98 weekly flights to various destinations in India while Sri Lanka’s budget carrier Mihin Air operates season flights to Varanasi & Gaya.
Sri Lanka’s Ministry for Industry & Commerce claims Sri Lanka has crossed the US8billion export earnings mark in 2010 & that they foresee it reaching US9billion by 2011. The example was to encourage further Indian investment & the offer of space in industrial zones while also negotiating with other ministries to allocate lands for cultivating fruits & vegetables in the country.
India’s coconut exports have also seen a 30% surge following the ban on shipments from Sri Lanka. Indian coconuts are making their way to Middle East wherein Sri Lanka was the previous main exporter of fresh coconuts. Coconuts are grown in more than 86 countries worldwide producing 54billion nuts annually. India’s annual production is 13billion nuts & cultivated in Kerala, Tamil Nadu, Karnataka & Andra Pradesh. India has taken Sri Lanka’s place in the market.
Caution again is requested of the Government in the light of imports coming from India. 29 companies in India had been supplying substandard drugs to Sri Lanka for the past 6 years. The question is why are these companies not being blacklisted? What good is foregoing the cash bond in the terms of supply contract for Sri Lankans whose health is likely to be affected by taking these substandard drugs? Who is going to be accountable?
It is not only economically that India is present in Sri Lanka. Politically too, India now has 2 Indian consulates in Jaffna & Hambantota. We are also reminded of how Indian diplomats tried to coerce a Jaffna magistrate to freeing Indian fishermen. The seriousness of the issue is that Indian fishermen are increasingly intruding into Sri Lankan waters & this is impacting the livelihoods of 22,000 families in Jaffna who are dependent on fishing. Most of these fishing incidents have taken place close to the Tamil Nadu assembly elections & naturally makes any wonder what type of timing & what type of response was really aimed at by purposely creating the issue?
There are numerous cultural tie-ups also taking shape. The India-Sri Lanka Parliamentary Friendship Association was recently commemorated.
In December 2010 Sri Lanka began to receive the first ever chicken & egg commercial consignment imported frrom India to meet shortages in Sri Lanka’s domestic market. As such 500 tonnes of chicken & 50million eggs from one supplier was sent during the christmas season.
The Bank of Ceylon is also planning to have Indian businessmen invest in organic agriculture in the North & East as well as to provide financial services to 60,000 Sri Lankan refugees in Tamil Nadu. The exercise means that BOC will open 4 branches in India & invest US$25million as per Indian banking regulation to set up the four branches. The branche also plans to assist Indian businessment to start dairy projects & cultivation of fruits & vegetables using organic fertilizer with modern agro techniques.
Thus the calls for a joint economic zone to agreeing to the Comprehensive Economic Partnership Arrangement (CEPA) should spell caution for Sri Lanka & India’s insistence should also spell the need to take inputs from professionals & businessmen before taking a decision purely to support political goodwill. Most agreements in reality benefit only India as Sri Lanka’s investment in India remains relatively very small.
CEPA – a threat to Sri Lanka
We all know that CEPA or the Comprehensive Economic Partnership Agreement was a sequel to the Free Trade Agreement. The FTA operational since 2000 did not reap the benefits to Sri Lanka. This is evident in the statistics. Whereas Indian exports to Sri Lanka grew from USD1billion to USD2.9billion, Sri Lanka’s exports to India saw a small leverage from USD100m to USD500m. Much of Sri Lanka’s exports to India was vanaspati oil, marble & copper handled by Indian businessmen from Sri Lanka thus the FTA had only given Sri Lanka USD150m increase whereas India’s increase when into billions. The FTA had conceded 1351 duty-free items for Sri Lanka yet only 68 has an export value for the country. In contrast Sri Lanka has given India 319 duty free concessions which have favorable export interest to India. Therefore Indian businessmen are having it easy with Sri Lanka which is evident in over 50% Indian joint ventures in the SAARC region set up in Sri Lanka. It simply cautions Sri Lanka to be alert. A good example is the IOC which initially invested Rs700m from a local bank & then went for a public share issue & later diluted 30% of shares & keeps the remaining 70% within Indian control. For IOCs investment it controls 30% OF local petroleum distribution, has over 100 petrol stations & has been given land worth Rs.1billion in Colombo & has 40 Indian manufacturers operating in Sri Lanka. Their profits crossed Rs.7billion in 2007 alone. How has this benefitted Sri Lanka?
So while Sri Lanka has been accepting Indians & Indian ventures with open arms Sri Lankan investors in India have not been afforded similar receptions.
In 2004, Ceylon Biscuits Limited bought over the 3rd largest biscuit factor in India but an Indian court order in 2008 declared the sale “null & void”. Similarly when the Export Development Board ventured to open a Sri Lankan showroom in Chennai in 2004 wherein 17 local businesses participated the Indian authorities imposed a ban on retail sales prohibiting the sale of products & authority to only exhibit.
In defense the cases that India will cite would be the treatment given to Sri Lankan apparel trade & tea. By allowing Brandix & MAS Holdings Group to operate in India, India has been able to capture overseas markets traditionally held by Sri Lanka. India is not at fault for this & behoves the Sri Lankan Government to question why it could not have provided similar support. Also, of the total garment quota of 8m conceded by India to Sri Lanka, 6m have to be produced with Indian fabric while only 2m are subject to NTBs which equates in reality to only 1% of garment quota being utilized. Similarly tea quota is 15m kg which is also subject to NTBs & entry points are restricted to Cochin & Calcutta. This again equates to only 2.7% quota going to India.
How can CEPA be of any benefit to Sri Lanka when thus far all agreements ventured into between the two countries has merely benefited India while a few insignificant benefits have been afforded to Sri Lanka just for whitewashing purposes? CEPA covers both goods & services & also the free movement of people & this spells clear dangers for Sri Lanka – its people & its businesses & even the country’s integrity going forward. Moreover, CEPA is proposing to offer Indian film industry the right to own cinema halls & reserve cinema time to air Indian films which would again dilute Sri Lanka’s culture further. Indian labor would swamp Sri Lanka & be engaged in all sectors even presently without any agreement there are many Indians who are even overstaying their visas but nothing is being done about it. It is said that over 35000 Indians are currently in Sri Lanka with valid visas…& it behoves to ask how many Indians are in Sri Lanka without valid visas. In time to come Indians will be having a stake in every sphere of life. Has this being thought of by our policy makers & is Sri Lanka prepared to handle the disadvantages that are likely to take place as a result.
India & China will remain tomorrow’s powerhouses. Sri Lanka is important to both in terms of its geographical location. Sri Lanka has its own aspiration of developing overcoming the travails that existed during 3 decades of conflict. Do we envisage a country with high GDP as a result of vices being legalized or do we desire to keep our cultural identity & remain a country belonging to the ethnic races that make up Sri Lanka? That the country is experiencing enormous shifts economically is evident but it behoves any Government to first consider where these investments are likely to lead before signing on any dotted lines, commitments for which we may be sorry later & we would not be able to reverse.
Doing business with India is one thing, but the most important aspect of this bilateral involvement is India’s political maneuverings which have in the past & likely in the future to deny the respect it should give to a sovereign nation. India cannot deny its involvement to destabilize Sri Lanka. That single policy remains a reminder to Sri Lanka that India can never be trusted. A combined trade investment as is envisaged by officials may be good but we must all the while remember that India has the ability to economically & with people to engulf us if we are not careful enough to allow only a limited & controlled Indian presence in Sri Lanka. Allowing India to have a say & stake in every aspect of Sri Lankan life would spell the non-requirement for Sri Lankan leaderships – even politically in time to come.
All stakeholders of Sri Lanka need to be aware of this.