India seeks duty concession on cars, commercial vehicles, machinery in FTA with Sri Lanka

New Delhi: India is seeking customs duty concession on a number of goods including cars, commercial vehicles and machinery from Sri Lanka under a comprehensive free trade agreement (FTA), talks for which are underway, an official said.

India has also sought easier visa norms to further facilitate entry of professionals from here, the official said.

The 14th round of talks between senior officials of India and Sri Lanka was concluded recently in Colombo.

Issues which came up for the talks included rules of origin, goods, services, and technical barriers for trade.

On the other hand, Sri Lanka has sought removal of a quota on apparel exports to India. The island nation is also asking for duty concessions on tea and certain agricultural commodities.

The official said that as elections are announced in Sri Lanka, the next round of negotiations between the two countries will be held after that.

The two nations have already implemented a free trade agreement in goods and now they are negotiating to expand the pact by including more goods and services.

The India-Sri Lanka Free Trade Agreement (ISFTA) came into force in March 2000. It enhanced economic relations between the two countries by reducing tariffs on a wide range of goods.

Since the original ISFTA focused solely on goods, both countries have been negotiating for several years to expand it into a Comprehensive Economic Partnership Agreement (CEPA), which would include services, investment, and other areas of economic cooperation.

Under the current FTA, India allowed limited imports of garments from Sri Lanka at a 50 per cent tariff (or customs duty) concession for up to 8 million pieces annually, with a requirement that 6 million of these pieces use Indian fabric.

Additionally, India offered a 50 per cent tariff concession on up to 15 million kg of tea from Sri Lanka each year.

Think tank Global Trade Research Initiative (GTRI) said that Sri Lanka may be seeking removal of the quota on garments, especially considering that India has allowed duty-free imports of garments from Bangladesh under the South Asia Free Trade Agreement (SAFTA) for Least Developed Countries (LDCs).

"However agreeing to this request may not be easy for India as allowing duty free imports has led to a significant increase in garment imports from Bangladesh, growing from USD 144.25 million in FY'2014 to USD 739.06 million in FY'2024, a cumulative growth of 412.34 per cent," GTRI Founder Ajay Srivastava said.

Sri Lanka has placed items like automobiles and electrical goods on its negative list, restricting their import.

Since the implementation of the ISFTA, trade between the two countries has experienced fair growth.

India's exports to Sri Lanka increased from USD 499.3 million in FY'2000 to USD 4.17 billion in 2023-24, a cumulative growth of 735.2 per cent. Meanwhile, imports grew from USD 44.3 million to USD 1.4 billion over the same period.

In the last fiscal, India's key exports to Sri Lanka included petroleum products (USD 704 million), cotton (USD 260 million), pharmaceuticals (USD 255 million), refined sugar (USD 206 million), fabric (USD 223 million), machinery (USD 171 million), pepper (USD 90.9 million), car and motorcycle parts (USD 79.3 million), onions (USD 63.4 million), and pulses (USD 32 million).

Notably, India's exports to Sri Lanka fell from USD 5.1 billion in FY'2023 to USD 4.17 billion in FY'2024, primarily due to a significant reduction in petroleum product exports, which declined from USD 1.78 billion to USD 704 million, GTRI said.

India's major imports from Sri Lanka in FY 2024 were coffee (USD 103.7 million), garments (USD 55.65 million), animal feed (USD 72.2 million), areca nut (USD 65.5 million), light pepper (USD 44.4 million), rough diamonds (USD 26.9 million), and rubber (USD 26.7 million).

A Sakthivel, Apparel Export Promotion Council Southern Region in-charge, said that India should not extend concessions for garments to Sri Lanka, as the domestic industry could be impacted because of that.

"We too make those garments and I think India should not give more concessions," Sakthivel said.