Sri Lanka has been facing one of the harshest economic declines in the last decade. The country’s poverty rate has jumped from 11.3% in 2019 to 25% in 2022. More than 2 million people in Sri Lanka are suffering from the economic contraction. Some of the causes include food insecurity, lack of fuel, hyperinflation, supply chain interruptions and rising unemployment rates due to market shrinkage. The country’s northern neighbor, India, has contributed more than $3 billion toward alleviating this hardship. The leaders of both countries have been discussing economic integration, an undertaking that could benefit Sri Lanka greatly.

The Economic Integration

India’s economy has been performing better than many other countries in the world. The country’s GDP ranks as the fifth highest in the world, trailing behind only the U.S., China, Japan and Germany.

With India’s economy continuously growing, economic integration with Sri Lanka could be beneficial for both parties. Two factors will need special attention for this to work according to the Indian Council of World Affairs. The factors include profitability collaboration and foundational incorporation.

Indian Council of World Affairs notes that there are several subcategories that will need attention. These subcategories  include integration, labor market, education and integration with the Indian electricity grid.

Linking Power Grids

The economic integration process has been underway since the countries signed an official pact “to link their power grids and start negotiations on an upgraded trade agreement.” Apart from boosting power generation in Sri Lanka, the linkage of power grids could also increase the usage of renewable energy. The plan is to place a transmission line leading from southern India to the north-central province of Sri Lanka. And from the Indian electricity grid, Sri Lankans could have a continuous power supply and drive an ambitious economy.

Free Trade

Sri Lanka is known for trading high-quality textiles and garments. In 2019, the country hit $2.7 billion worth of imports to the United States (U.S.), becoming the 60th biggest supplier to the U.S. The top two categories were knit and woven apparel.

During the economic integration, the leaders of Sri Lanka plan to make that one of the big exports when it comes to the free trade agreement. There was already an agreement between the two countries. However, making updates to the arrangements could open Sri Lanka to a higher probability of creating trade pacts with China and Thailand. For this to work, Sri Lanka may need to find a way to advocate itself to its partners that it is a profitable investment for new trades and businesses. To the country’s advantage, the short commute to India is highly convenient, and with Sri Lanka’s capital being Colombo, promoting itself as a business destination may not be challenging. And that is because Colombo has a great reputation as a hub for tourism.

The Future

Based on suggestions, India and Sri Lanka would need to come together to create more means of transportation. The increase in foot traffic could create an economic boom for Sri Lanka. Overall, an economic integration between the two countries could boost the labor market in Sri Lanka and give agricultural workers more time to recover from the chemical fertilizer ban in 2021 (it was one of the major reasons for the economic contraction). As things stand, collaborating with India carries the potential to bring about economical upliftment for the people of Sri Lanka.

– Zyairah White
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