Category: Spotlight

India and Sri Lanka have embarked on a promising journey toward an enduring partnership, as outlined in their joint statement, highlighting a shared future of mutual benefit and collaboration. The meeting between India’s Prime Minister, Narendra Modi, and Sri Lanka’s President, Anura Kumara Dissayanake, on December 16, 2024, during the latter’s State visit to the Republic of India, marked a significant milestone in the bilateral relationship between the two neighbouring countries.

Strong Bilateral Foundations

The India-Sri Lanka relationship is deeply rooted in cultural, civilisational, and geographical ties, coupled with robust people-to-people relations. The two leaders reaffirmed their commitment to nurturing this partnership through cooperation in various domains. President Dissayanake expressed profound gratitude for India’s steadfast support to Sri Lanka, particularly during the unprecedented 2022 economic crisis. India’s assistance, both during and after the crisis, played a pivotal role in alleviating the suffering of the Sri Lankan people.

Reaffirming the commitment to shared goals, President Dissayanake acknowledged the importance of India’s support in fulfilling Sri Lanka’s aspirations for a prosperous future and sustained economic growth. Prime Minister Modi, in turn, reassured President Dissayanake of India’s unwavering commitment to supporting Sri Lanka’s recovery and development, consistent with India’s ‘Neighbourhood First’ policy and the ‘SAGAR’ vision (Security and Growth for All in the Region).

Both leaders emphasised that bilateral ties had deepened significantly over time, significantly contributing to Sri Lanka’s socioeconomic progress. They agreed on the importance of further strengthening their cooperation to foster mutual prosperity, reinforcing the foundation of a comprehensive partnership that prioritises the welfare of the peoples of both nations.

Political Engagements and Development Cooperation

Over the last decade, political exchanges between India and Sri Lanka have increased, leading to enhanced bilateral ties. Prime Minister Modi and President Disayanaka decided to step up political engagements at the leadership and ministerial levels. They recognise that regular parliamentary exchanges can advance democratic values and institutional best practices.

In the realm of development cooperation, India’s ongoing assistance has had a transformative impact on Sri Lanka’s socio-economic development. Despite the ongoing debt restructuring efforts, President Dissayanake lauded India’s continued support for critical projects, particularly those aimed at reducing Sri Lanka’s debt burden. Notable initiatives include the Indian Housing Project, the Hybrid Renewable Energy Project for three islands, and the High Impact Community Development Projects being implemented across Sri Lanka.

The two leaders also outlined several new areas for cooperation, focusing on people-oriented development projects, such as the completion of the Indian Housing Project’s Phase III and IV, and the solar electrification of religious places in Sri Lanka.

Training and Capacity Building

India has also played a vital role in supporting Sri Lanka’s capacity-building efforts. The two leaders agreed to organise focused training for 1,500 Sri Lankan civil servants over five years through the National Centre for Good Governance in India. Additionally, both leaders emphasised the need for further training programmes tailored to Sri Lanka’s specific needs in civil administration, defence, and legal fields.

Debt Restructuring and Economic Stability

India’s strategic support has played a vital role in Sri Lanka’s economic revival. President Dissayanake expressed his gratitude for India’s multi-faceted assistance, which included emergency financing, foreign exchange support, and India’s pivotal role in Sri Lanka’s debt restructuring process. As Co-Chair of the Official Creditors’ Committee (OCC), India facilitated the prompt finalisation of debt discussions, which was crucial in stabilising Sri Lanka’s economy.

Based on these efforts, the two leaders agreed to transition from debt-driven models to investment-led partnerships across various sectors. This approach is expected to ensure a more sustainable and resilient path to economic recovery, growth, and prosperity for Sri Lanka.

Enhancing Connectivity and Energy Development

The leaders recognised the importance of enhancing connectivity between the two nations, emphasising the potential for mutual economic growth. While they expressed satisfaction with the resumption of passenger ferry services between Nagapattinam and Kankesanthurai, both leaders agreed to expedite the re-establishment of the passenger ferry service between Rameshwaram and Talaimannar. Additionally, they explored the possibility of jointly rehabilitating the Kankesanthurai port with grant assistance from India.

Energy security remains a key priority for both nations. The two leaders underscored the significance of strengthening energy cooperation to ensure timely and affordable energy resources for both countries. Key initiatives discussed include the solar power project in Sampur, LNG supply from India to Sri Lanka, and establishing a high-capacity power grid interconnection. The leaders also explored joint offshore wind power development in the Palk Straits while prioritising environmental protection.

Both countries reaffirmed their commitment to developing Trincomalee as a regional energy and industrial hub to help Sri Lanka’s energy security and economic growth.

People-Centric Digitisation and Technological Cooperation

India’s success in people-centric digitisation has been a model for governance and service delivery. Sri Lanka expressed interest in adopting similar systems with India’s assistance. Both leaders agreed to expedite the implementation of the Sri Lanka Unique Digital Identity (SLUDI) project and collaborate on the rollout of Digital Public Infrastructure (DPI) in Sri Lanka. They also discussed expanding digital financial transactions and leveraging India’s expertise in digital platforms such as UPI, Aadhaar, and GeM.

In education and technology, the leaders agreed to strengthen collaboration in research and development, particularly in agriculture, aquaculture, digital economy, and healthcare. They also explored expanding academic exchanges and fostering cooperation between start-ups in both countries.

Trade and Investment Cooperation

The India-Sri Lanka Free Trade Agreement (ISFTA) has significantly impacted bilateral trade. Both leaders acknowledged the vast potential for further expanding trade and investment. They agreed to continue discussions on the Economic & Technological Cooperation Agreement and explore the possibility of enhancing trade settlements between the two countries in local currencies.

Both leaders emphasised the importance of encouraging investments in key sectors to boost Sri Lanka’s export potential. They agreed to pursue discussions for the early finalisation of a bilateral Social Security Agreement, which would provide greater protection for the workers of both countries.

Agriculture, Animal Husbandry, and Strategic Cooperation

Agriculture remains a priority for both nations, with a focus on modernising Sri Lanka’s agricultural sector. The two leaders agreed to establish a Joint Working Group to explore comprehensive development in the sector. They also discussed ongoing cooperation in the dairy industry to promote self-sufficiency and nutritional security in Sri Lanka.

In terms of defence cooperation, both leaders recognised the shared security challenges in the Indian Ocean Region and the need for closer collaboration in countering traditional and non-traditional threats. India reaffirmed its commitment to assisting Sri Lanka in strengthening its defence and maritime security, providing vital support, including maritime surveillance equipment and disaster response capabilities.

Both countries also discussed enhancing cooperation on terrorism, narcotics smuggling, and intelligence sharing. They agreed to explore the possibility of a formal Defence Cooperation Framework, along with joint exercises, training programmes, and capacity-building initiatives.

Cultural and Tourism Development

The cultural ties between India and Sri Lanka are strong, and both leaders agreed on the need to promote cultural and tourism links further. They highlighted the importance of enhancing air connectivity and promoting investments in Sri Lanka’s tourism infrastructure. With India being Sri Lanks’s primary source of tourism, both leaders committed to establishing a framework for developing religious and cultural tourism, as well as fostering academic linkages to advance cultural and linguistic ties.

Fisheries Issues

Acknowledging the challenges fishermen from both countries face, and considering the livelihood concerns, the leaders agreed on the importance of addressing these issues in a humanitarian manner. In this regard, they emphasised the necessity of preventative measures to prevent aggressive behaviour or violence. They also welcomed the recent conclusion of the 6th Joint Working Group Meeting on Fisheries in Colombo. They expressed confidence that through dialogue and constructive engagement, a long-lasting and mutually acceptable solution could be reached. Given the special relationship between India and Sri Lanka, they instructed officials to continue their engagement to address these issues.

President Dissayanake expressed gratitude to India for its initiatives supporting the sustainable and commercial development of fisheries in Sri Lanka, including the development of the Point Pedro Fishing Harbour, the rehabilitation of the Karainagar Boatyard, and cooperation in aquaculture through Indian assistance.

Regional and Multilateral Cooperation

Recognising their shared maritime security interests in the Indian Ocean Region, both leaders agreed to strengthen regional maritime security, bilaterally and through existing regional frameworks. In this context, the leaders welcomed the recent signing of the Founding Documents of the Colombo Security Conclave, headquartered in Colombo. India reiterated its support for Sri Lanka in advancing the objectives of the Conclave.

India also expressed complete support for Sri Lanka’s chairmanship of the Indian Ocean Rim Association (IORA). Both leaders stressed the need for a substantive action plan by IORA member countries to ensure the security and development of the region.

Additionally, both leaders reaffirmed their commitment to further strengthening regional cooperation under the Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC).

President Dissayanake requested the support of Prime Minister Modi for Sri Lanka’s application to become a member of BRICS. In turn, Prime Minister Modi expressed appreciation for Sri Lanka’s support for India’s candidature for a non-permanent seat on the UN Security Council for the term 2028-29. The leaders noted that the effective and timely implementation of the agreed measures, as outlined, would deepen the bilateral ties between their countries and set a new standard for friendly and neighbourly relations. Accordingly, they directed their officials to initiate the necessary measures for implementing these understandings and pledged to provide guidance wherever required. Both leaders further resolved to continue high-level engagement to enhance mutually beneficial bilateral relations, address Sri Lanka’s sustainable development needs, and contribute to the stability of the Indian Ocean Region. President Dissayanake invited Prime Minister Modi to visit Sri Lanka at his earliest convenience.    

IACC and KPMG recently organised a roundtable convention where in leaders from American and Indian companies deliberate on irritants in Indo-US trade. Ivor Vaz reports…

GIVEN THE PACE at which the India-US relationship has been flourishing in recent times, and the huge significance of bilateral trade between these two democracies, the Indo American Chamber of Commerce (IACC) – in conjunction with knowledge partner KPMG – recently organised a roundtable convention in Mumbai, wherein leaders from American and Indian companies found a perfect platform to identify the hurdles affecting bilateral business and seek solutions.

The US is India’s second largest trade partner today after the EU, and is also India’s largest export destination (India is the 13th largest for the US). India’s exports to the US in 2017-18 stood at $ 47.9 billion, while India imported goods worth $ 26.6 billion during the year. The companies operating in the markets of both the countries have been
impacted due to the ‘trade irritants’, including terminating India’s status of beneficiary country from the Generalised System of Preference (GSP) program, data localisation,
e-commerce restrictions and visa related issues. It was widely agreed upon that in order to achieve a target of $ 500 billion between the two countries; there was an urgent
need to move from trade barriers to trade promotions without compromising their respective national interests. The focus had to be on ‘collaborative growth’. One of the key issues discussed at the convention was the withdrawal of GSP benefits to India. Under the GSP programme, nearly 2,000 products including auto components

and textile materials could enter the US duty free. India was the largest beneficiary of the GSP programme in 2017 with $ 5.7 billion imports given duty free status. The GSP benefit conferred over the last three decades has significantly contributed to the growth of trade between India and US, and the participants felt that such mechanism should continue for enhancing trade between the two countries.

Regrettably, the preferential trade status for India under GSP was terminated, w.e.f. June 5, 2019. Participants argued that this retraction would negatively impact the Indian exports of goods to US which were earlier eligible for GSP benefit. The key products/industries that will be majorly impacted include dairy products, items of gold or silver, chemical products, engineering sector, and textile goods. Further, due to the increase in the duty rates for aluminium/steel, exporters in India have suffered a setback and the Indian Government raised a retaliation claim to recover the cost to the tune of $ 241 million approx. levied on steel/aluminium exports.

For the record, removal of GSP is likely to impact US companies as well. While it will cost American businesses over $ 300 million additional tariffs every year, the new tax will result in job losses, cancelled investments and cost increases for consumers. Furthermore, US companies will not get access to the Indian market.

It was suggested that new ventures should be identified for the same – for instance, the textile industry may evaluate setting up of processing units in US especially in areas like defence related textiles and clothing. This shall be a win-win situation for both the countries in a way that the basic raw materials such as yarn and fibre can be exported from India to US markets leading to value addition and employment in the US. Also, an external audit can be conducted of the Indian companies wanting to set up units in US, to certify or rate their strengths and capabilities. It was also felt that the two countries should collaborate and identify points of convergence to support the ‘Make in India’ initiative of the Government of India. Some areas where the convergence could be possible include agro processing, energy (both renewable and nonrenewable), infrastructure and defence.

Data localisation was another central point on the discussion table. The considerable growth in the payment ecosystem in India has warranted safety and security of technology dependent processes and workflows involved in the realm of the payment system. Key concerns included high cost of investment in in storage infrastructure in global servers in order to align with the RBI requirements; and cost of investment in security and monitoring systems for the local servers. There is also concern about third party risk, as payment data is processed and stored in multiple geographies. Therefore, organisations need to gain clarity on countries’ relevant data laws as applicable. Payment System Operators (PSOs) will also need to ensure compliance by third party service providers.

It was consequently suggested that PSOs should identify the flow of payments data in their payment process in order to align with the RBI requirements as applicable. Also, they should aim to segregate the storage mechanism for domestic payments from cross-border payments. Contractual arrangements and periodic assessments of the third party partners could be considered to ensure compliance of the service providers, intermediaries, payment gateways and third party vendors.

One of the ‘touchy’ points up on debate was the allocation of work visas for Indian nationals. It is now a well-known fact that acquiring work visas in the US has become increasingly difficult for Indians due to the ‘Buy America, Hire American’ diktat of US President Donald Trump and related policies leading to the hiring of highly skilled foreign nationals or highest-paid beneficiaries. There has also been a steady rise in H-1B denials and Requests for Evidence (RFEs) with regard to H-1B petitions and visas. Moreover, the US government is also considering a cap on H-1B visas issued each year to Indians at between 10-15% of the annual quota (there is no current country-specific limit on the 85,000 H-1B work visas granted each year, and an estimated 70% go to Indians). US Citizenship and Immigration Services (USCIS) has also reversed an order in which it selects H-1B petitions under the H-1B cap and the advanced US degree advantage. As a result of this change, there is nearly a 15% rise in the number of beneficiaries with a master’s degree or higher from a US institution of higher education being selected under the H-1B quota for FY2020. This has a negative impact on Indian headquartered companies with a large number of workers with US equivalent degrees but no US education.

As a result, millions of dollars are lost via project delays and contract penalties due to high number of RFEs, unpredictability and lack of enough H-1B visas. Also, a large number of man hours are spent to address RFEs and 221(g) notices issued by the US Embassy or multiple Consulates in India. This further slows down in the processing of applications, leading to project delays and losses.

As far as arbitration goes, it was suggested that Alternate Dispute Resolution (ADR), in co-operation with the US for all kinds of trade between the two countries needs to be institutionalised. This culture is already prevalent in US, and India is slowly waking up to it. It was felt that the IACC could play a pivotal role in facilitating this between the two countries by providing that valuable platform.

Leadership of affected companies from various sectors including textiles, foreign banks, technology companies, insurance, and manufacturing, deliberated grassroots-level issues they are facing due to these trade irritants between the two countries and potential solutions were discussed. Attendees at the roundtable deliberations included company Chairmen and CXO level officers. The convention was chaired by Naushad Panjwani, Regional Vice President, IACC; along with Hasnain Shroff, CA; and Jennifer Larson, Deputy Principal Officer, US Consulate General, Mumbai, representing the US Government.