Need to think like Singapore when trading with India, opine economists
Sri Lanka needs to start paying attention to how South-East Asian countries used the tools of cooperation and integration to stimulate and accelerate economic growth and foster development, according to Deshal De Mel, Senior Economist, Hayleys Group.
The young economist questioned the feasibility of the findings from a preliminary study done by University of Colombo Head of the Department of Economics Dr. Abeyratne, at a seminar titled ‘Integrating Sri Lankan Industries into the Indian Supply Chains’ recently.
“We would need to identify the fastest growing or the most substantive industrial products, then identify the major components that go into that, and see whether what we can do will be cheaper or at a higher quality than what is done in India. If we identify things under those lines, then there is scope for integrating into Indian supply chains.” De Mel explained.
He cautioned that this was easier said than done. He pointed out that according to Prof. Abeyratne’s study, there isn’t any significant integration activities undertaken by Sri Lanka, and also that Sri Lanka is no longer a cheap manufacturing destination.
“Our cost of manufacturing is relatively high; in order to be competitive and successful it is unlikely that we will do something cheaper, that is already manufactured in India, so we have to rely on something that is higher in value, something that has a great degree of technology and Research and Development” he argued.
De Mel stated that India already has those capabilities, so it will be challenging for Sri Lankans to manufacture high technology products in a more efficient manner. Therefore a long term task for the country would be to produce more graduates in fields such as science, technology and IT as well as vocational training.
“India also has access to relatively cheap labor and natural resources and abundant land. Given the scale and diversity of the Indian economy there is already plenty of scope for manufacturing different components in different parts of the country, keeping the benefits within the country. So, at first glance I don’t really see immediately where the opportunity would be for manufacturing certain components in Sri Lanka” De Mel opined.
De Mel suggested that Sri Lanka follow ASEAN’s example, by removing Non Tariff Barriers ; “If you look at the ASEAN story, one of the major factors that drove this was the very limited transaction costs in trading between these countries. We need to replicate that in order to be successful. Otherwise it doesn’t really make sense to shift your production between geographical locations.”
Another ASEAN example De Mel highlighted was that third party multi national corporations (MNC’s) as well as the respective governments in the region spurred on the phenomena of Global Product Sharing. For Sri Lanka to engage similarly with India, the Sri Lankan government and third party MNCs that are manufacturing in India would have to drive the process
“The government should identify and educate these local entities on the potential that we might have. For instance in Singapore, institutions such as the Economic Development Board played a very important role in proactively supporting this kind of production fragmentation, for instance, they provided financial assistance to domestic companies in terms of being able to meet up to the MNC’s standards.”