Integration of Sri Lanka into Indian Supply Chains under the Bilateral Free Trade Agreement

Abstract

The purpose of this article is to examine the role of Indo-Lanka Free Trade Agreement (FTA) in integration of Sri Lanka into the Indian manufacturing processes in line with emerging trade patterns based on ‘global product sharing’. While Sri Lanka has established close economic ties with India in general, the FTA (2000) has led to a ‘zero’-tariff regime covering a bulk of their bilateral trade. However, there is no evidence to support the popular perceptions about the deeper integration of Sri Lanka into Indian supply chains. While the expansion of Sri Lanka’s trade with India under the FTA has revealed peculiar outcomes, the ‘old-style’ trade integration between the two countries has remained virtually unchanged. Trade and growth patterns in both Sri Lanka and India are different from the experience of East and South-east Asian countries which created opportunities to accommodate globalized supply chains of fragmented manufacturing processes.