27 March 2015 13:31:57 IST

Will Modi’s Sri Lanka visit push up bilateral trade?

Prime Minister Narendra Modi waves as he departs for his three-nation tour of Seychelles, Mauritius and Sri Lanka, in New Delhi on Tuesday.

Skewed in India’s favour even after 17 years of FTA

As Prime Minister Narendra Modi steps on Sri Lankan soil, the big question is whether the historic visit will improve bilateral trade between the two countries which, even after 17 years of free trade agreement (FTA), remains on a low key and skewed in India’s favour.

A recent study of the Centre for Economic Studies and Policy of the Institute of Social and Economic Change, Bengaluru, validated the general impressionistic view that bilateral trade between the neighbours is being hampered by non-tariff barriers and the animosity between Sri Lanka and Tamil Nadu.

Trade between the countries touched a peak of $4.8 billion in 2011 (89 per cent in favour of India), but slid to $3.5 billion in 2013 (85 per cent).

Though these numbers compare well with those of 2000, when total trade was $655 million (91 per cent), experts believe it is far less than the potential and too much in India’s favour.

Further, only 13 per cent of the products that India sells to Sri Lanka are covered by the FTA, though 65 per cent of India’s imports from Sri Lanka are under the FTA.

“While concessions offered by India to Sri Lanka did enhance access to the Indian market, the converse did not hold for India’s exports to Sri Lanka,” said Prof Barun Deb Pal, who conducted the study.

Several non-tariff barriers crimp trade, the study said. One is the holding up of Sri Lankan foods at Indian ports — to check quality and labelling compliance — where the goods sit awaiting clearance. “There is a shortage of proper storage facilities at the ports, especially for items requiring cold storage, leading to loss of revenue to various traders,” the study noted.

The FTA specifies that Customs shall not keep goods for more than three days and shall obtain an undertaking from the importer and release the goods.

Delayed reports

However, from time to time the goods arrives at the destination and samples are drawn by Customs for testing.

It takes 20-30 days to obtain a report from the lab and 40 days to release the goods. Exporters are charged $4.60-70 as testing fees for each sample representing every import consignment.

Meanwhile, importers have to pay heavy demurrage and storage charges.

Large samples

The officials also take 500 gm of sample for testing from every import consignment, which exporters feel is grossly excessive, especially in the case of high-value products.

If India’s cap on pepper imports at 2,500 tonnes and the non-inclusion of rubber in the FTA are irritants for the Sri Lankans, Indian exporters complain that Sri Lanka imposes discriminatory tariff on commodities such as onion.

The surcharged political atmosphere in Tamil Nadu, where Sri Lankan goods are sometimes even burnt, has further dented trade, the study pointed out.