Sri Lanka’s Economic Hotchpotch

By Kath Noble -September 18, 2013

Kath Noble

The Government’s economic policy is quite a mystery. It combines elements of what economists regard as completely contradictory ideas, unencumbered as it is by any clear ideology or even vaguely worked out plan of action.

Consider its approach to international trade.

Last week, the Indian media reported that India’s largest car maker Maruti Suzuki is to decide on whether to set up an assembly unit in Sri Lanka by the end of this financial year. It would be its first overseas venture.

Its chairman was quoted as saying that the initiative is being considered in the wake of significant increases in tariffs by the Sri Lankan authorities. Maruti Suzuki exported 15,000 vehicles to Sri Lanka in 2011/12, accounting for half of the 29,000 new cars sold in the country – preowned vehicles made up the remainder of the total market of 59,000 vehicles. But sales have dropped sharply.

Import duty on cars has been increased from 120-291% to 200-350%, while import duty on threewheelers and twowheelers has been increased from 51-61% to 100%. Excise duty has also been increased.

Sri Lanka is the largest export market for Indian cars, earning them $800 million in 2011/12, so manufacturers have responded with considerable concern.

Typically, it has been portrayed as a move to undermine India in favour of China. The story in the Business Standard referred to a $20 million investment by a Chinese company in an assembly unit in Sri Lanka, suggesting that the changes in the Sri Lankan tariff regime were part of the Mahinda Rajapaksaadministration’s enthusiasm for all things Chinese.

That Sri Lanka has moved closer to China in recent years is undeniable.  Read More