True Indo-Lanka economic integration must encompass services: ASSOCHAM Chief

Economic ties between India and Sri Lanka have greater upside for mutual benefit, emphasises ASSOCHAM President Rana Kapoor, who is also the Managing Director and CEO of India’s Yes Bank. He also believes true integration of bilateral ties should encompass services taking strength from booming trade. Given the strong ties and significant scope for further enhancement, ASSOCHAM recently set up a Sri Lanka Chapter. Following are excerpts of the Daily FT interview
with Kapoor:

 

 

Q: Can you list some key reasons for setting up an ASSOCHAM Sri Lanka Chapter? What will the objectives of the Sri Lanka Chapter be and what specific role will ASSOCHAM Sri Lanka Chapter play?
A: ASSOCHAM (Associated Chamber of Commerce and Industry of India) is India’s apex Knowledge Chamber. One of our main agenda items for the year 2014-15 is to promote business and cultural ties between India and key economic partners.
The ASSOCHAM Sri Lanka Chapter is being set up to boost business and trade ties between the two countries. The Chapter will endeavour to further strengthen bilateral relations between India and Sri Lanka. Relations between the two nations date back to historic times; and despite the strong trade and business ties that we share, the full potential of the relationship is yet to be achieved.
While the primary aim of the ASSOCHAM Sri Lanka Chapter is to deepen economic, social and cultural bonds between India and Sri Lanka, the Chapter has been mandated to extend a conducive and enabling platform to Indian and Sri Lankan business communities to engage and explore investment opportunities in each other’s regions. We have also planned a series of business promotion activities in different parts of Sri Lanka, while inviting Sri Lankan companies to explore the vast potential India has to offer.

 
Q: How unique is the Sri Lanka Chapter? Have you set up similar chapters elsewhere? If yes, could you list countries and year of establishment and outline how ASSOCHAM selects a country and the decision process?
A: Sri Lanka is one of India’s closest neighbours, and one which we share deep business ties with. It is a natural fit, in ASSOCHAM’s view, to set up a dedicated chapter in Sri Lanka, with an aim to further deepen these ties.
ASSOCHAM proactively plays a vital role in impacting the policy and legislative framework to foster balanced economic, industrial and social development in India through action-oriented policy advocacy and sustained engagement with the Government, policy-makers, regulators and industry.
In an attempt to take forward the Indian Government’s vision of ‘Make in India’, ASSOCHAM is expanding globally through international offices in key economies to invite Multinational businesses to be a part of India’s economic transformation. ASSOCHAM is already present in 15 key international geographies including the GCC, China, Russia, UK, Japan and USA. ASSOCHAM has also signed MoUs to set up partnerships with business chambers in more than 75 countries.

 
Q: Who heads the Sri Lanka Chapter and can you reveal the composition of the Advisory Board/Council?
A: Tilak De Zoysa (Supervisory Board Member and Advisor to Al-Futtaim Group) has been appointed as the Chair of the ASSOCHAM Sri Lanka Chapter. The Chapter, with full involvement of Zoysa, will invite prominent industry and thought leaders of Sri Lanka to join the Chapter as Honorary Members. The Chapter will work towards extending a conducive and enabling environment to Indian and Sri Lankan business communities to engage and explore investment opportunities in each other’s regions.

 
Q: Could you outline how ASSOCHAM selects a country and the decision process? In your opinion how timely is the setting up of the Sri Lanka Chapter?
A: ASSOCHAM has prioritised opening international offices in top nine locations in Phase 1, basis the quantum and potential for trade and investment, with a view to actualise the vision of the Indian Government’s recently launched ‘Make in India’ campaign and build strategic partnerships, namely US, UK, Nepal, Sri Lanka, Australia, Canada, Russia, Germany, GCC, Singapore. India and Sri Lanka share good political relationship, considering Prime Minister Narendra Modi has met the Sri Lankan President thrice, since he took over as the PM. On the economic front, our trade is almost $ 5 billion. After the implementation of the FTA, trade has increased almost 10 times. Therefore, in order to take this economic engagement to the next level, ASSOCHAM has launched the new Sri Lanka Chapter.

 
Q: What is ASSOCHAM’s take on the current status of Indo-Lanka economic ties?
A: In recent years, Indo-Sri Lankan economic relations have become a model for cooperation in the South-Asian region. Having said so, there remains scope for further improvement. India and Sri Lanka need to do away with negative lists as well as quantitative restrictions on trade flows, and identify sectors of mutual cooperation that will serve to further business interests of both the nations.

 
Q: What are ASSOCHAM’s views on the Indo-Lanka FTA and its progress so far?
A: Following the implementation of FTA (in March 2000), trade between India and Sri Lanka has risen dramatically. Preceding the agreement, in 1996-2000, total trade between the two partners averaged $ 0.50 b on an annual basis. Post the FTA, total trade between has increased nearly 10-fold to $ 5 b as of FY14.
The FTA has brought tremendous benefits to both sides. In fact, Sri-Lanka’s exports to India have increased 14 times while India’s exports to Sri Lanka have increased eight times since the implementation of the FTA. ASSOCHAM’s believes that progress of the India-Sri Lanka FTA has been more than satisfactory, with the outlook suggesting positive impact on bilateral trade for both countries.

 
Q: What is ASSOCHAM’s opinion on the proposed Indo Lanka talks to expand the FTA to cover services and investments?
A: True economic integration between India and Sri Lanka requires services to be taken into account given that both countries have similar share of services in their GDP (55%-60%). There are immense benefits that could be reaped through cooperation in the services sector.
For instance, Sri Lankan hotels have ventured into India and vice versa and we believe the trend is likely to continue given the focus of both governments on tourism development. Further, in transport, Sri Lanka has higher advantage given its dominance of maritime transport while India enjoys advantage in air services following emergence of strong private sector participation.
Similar complementarities can be mapped for other sectors such as communication, construction, computer and other business related services to boost bilateral investment flows. While this has been recognized by both countries and efforts were made to institutionalize cooperation in form of CEPA in 2005 – which is deemed to be an extension of the Free Trade Agreement (FTA), the negotiations are yet to come to fruition. We are of the opinion that it is absolutely critical to make India-Sri Lanka FTA more comprehensive to include services and investment.

 
Q: How can the two countries enhance greater bilateral trade and investment? ASSOCHAM’s take on how Sri Lanka can synergise/benefit from policies of India’s new Government? How can Sri Lanka’s private sector partner ASSOCHAM and its network to boost Lankan exports to and investments in India?
A: The two countries already enjoy healthy trade and business ties; bilateral trade amounted to US$ 4.5 billion in 2013-14. While Sri Lanka is India’s largest trade partner in South Asia, India in turn is Sri Lanka’s largest trade partner globally. We plan to take these partnerships to even greater heights, in sync with the existing partnerships, while scouting for new avenues. There are significant opportunities in both countries, especially with the Indian Government’s new focus on inviting foreign companies to ‘Make in India’; there are many options that can be explored.

 
Q: Where would you like Indo-Lanka economic ties and bilateral trade/investments to be in five or 10 years’ time?
A: With the Indian economy poised to witness a strong growth revival, there exists significant potential for mutual trade and investments to grow between India and Sri Lanka.
On the trade front, ASSOCHAM estimates suggest that a 1% rise in India’s GDP can potentially raise trade between the two partners by $ 360 million on an annual basis. We expect bilateral trade to increase by another $ 1.0-1.5 b between India and Sri Lanka over the next 5 years.
On the investment front, bilateral flows between India and Sri Lanka have been limited in absolute terms. It is estimated that Indian companies have invested close to $ 1 b in Sri Lanka since 2003 while Sri Lanka’s investment in India stands at $ 30 m. However, in relative terms, India accounts for close to 11% of total outward flows from Sri Lanka and it is the fourth largest overall investor in Sri Lanka. Further, we are of the opinion that the essential feature of FDI flows for both countries is not capital formation but its impact on technology transfer and trade creation. In this regard, ASSOCHAM believes that it is important to review existing Bilateral Investment Promotion and Protection Agreement (BIPA) in order to enhance its effectiveness for investment and its link with technology and trade.

 
Q: Recently ASSOCHAM had a maiden trade show in Kandy. How successful was it and what benefits did ASSOCHAM members and Sri Lankan firms derive?
A: ASSOCHAM conducted a mega India Trade Fair to exhibit products and technologies last month which was hugely successful. 80 Indian companies participated in the exhibition from diversified sectors of business and economy and many of them signed business contracts with their counterparts in Sri Lanka. This was a great precursor to the launch of our ASSOCHAM Sri Lanka Chapter. Building on the success of this event, we are also planning a series of such business promotion activities in different parts of Sri Lanka and also inviting Sri Lankan companies to visit India and explore the business potential waiting for them in India.

 
Q: ASSOCHAM’s take on how Sri Lanka can synergise/benefit from policies of India’s new Government?
A:Economic ties between India and Sri Lanka have greater upside for mutual benefit, emphasises ASSOCHAM President Rana Kapoor, who is also the Managing Director and CEO of India’s Yes Bank. He also believes true integration of bilateral ties should encompass services taking strength from booming trade. Given the strong ties and significant scope for further enhancement, ASSOCHAM recently set up a Sri Lanka Chapter. Following are excerpts of the Daily FT interview with Kapoor: ASSOCHAM urges the Sri Lankan Government and businesses to pursue the right policies to explore opportunities that will cater to economic interests in both the counties. As India’s apex industry chamber, we highlight the three sectors that provide opportunity for establishing mutual synergies between India and Sri Lanka – tourism, science and technology and port development.