October 16 was ‘Black Wednesday’ or ‘Kalu Badada’. Organisers of a Facebook protest seemed to have adopted a word play with ‘Alu Badada’ – the Sinhala term for Ash Wednesday. They made their Facebook profile pictures and wallpapers black. It was their way of protesting the planned Economic and Technical Cooperation Agreement (ETCA) between Sri Lanka and India. The vast majority who joined were employed in the IT industry. A protester’s average profile was of a twenty-something male, working for a small and not-well-known IT firm. Hardly anybody outside of the IT sector joined the protest.
It wasn’t a success because few showed an interest. I found that less than 2% of my FB friends had participated. The protest was supposed to continue till Friday, but by the next morning many had abandoned it by reverting to their old profile pictures.
That does not mean the remonstration should be ignored. Neither can its opponents be blamed for fearing job losses. The government’s repeated reassurances have been unsuccessful in allaying unfounded fears because these aren’t backed by facts. ETCA advocates independent individuals, and the government has failed to put forward a single credible spokesman on its behalf.
Trade pacts between governments, we know from previous experience, are neither inherently good nor bad. Success depends, inter alia, on the trust between and commitment of the parties. Even if a trade pact was a success, its impact on groups and individuals may vary. An overall successful trade agreement may be disadvantageous to one tiny group. It is too early to say for sure, particularly before any documents are public, but a negative impact on the local IT industry (in the SME sector) is a possibility.
That concern per se may not or should not stop the government from signing the ETCA and mutually opening the services markets to each other. So I am optimistic that ETCA will happen. Personally, I see nothing principally wrong with ETCA. We live in a globalised world, and India is a $2 trillion market at our doorstep. Not plugging into their supply chains will be too foolish. If the outcome is advantageous, the sooner we integrate the better. That is in spite of a possible negative impact on selected industries. No trade policy has ever been universally beneficial. So why should ETCA be?
Remember, ETCA will not be the end, the same way it wasn’t the beginning. The doors were already open with the Indo-Sri Lanka Free Trade Agreement (ISFTA) signed in 1998. ETCA moves it forward. More business with our neighbor will be a certainty. The questions are, how exactly it is done, for what goods and services, and who will benefit in the long run.
Let’s start with the basics. The Indian economy is huge – the seventh-largest globally, measured by nominal GDP, and the third-largest by purchasing power parity (PPP). It is one of the G-20 major economies, a member of BRICS and a developing economy with an average growth rate of approximately 7% over the last decade. More importantly, it has the potential to become the world’s third-largest economy in the next decade, and one of the two largest economies by mid-century. India has one of the fastest growing services sectors in the world, with an annual growth rate of above 9% since 2001, and the fourth-largest startup hub in the world with over 3,100 technology startups over 2014-15. In agriculture, it ranks second worldwide in farm output. India’s two major stock exchanges, The Bombay Stock Exchange and the National Stock Exchange of India, have a market capitalisation of $1.71 trillion and $1.68 trillion, respectively, as of 2015, which ranks 11th and 12th globally. Well, we don’t need more data to prove that India is big. Trying to be a protectionist in the backyard of such a huge economy makes absolutely no sense.
The other side of the coin is that India’s challenges are also big. Its 1.3 billion population is rapidly expanding. Soon, one of out of every five people in the world will be Indian. By 2022, India could be the world’s most populous country. The fact that 22% of that 1.3 billion still live below the national poverty line cannot be ignored. The World Bank says 276 million Indians live on less than $1.25 per day. That is 14 times the population of Sri Lanka. This section of India’s population seeks decent jobs. They already contribute to domestic immigration in India. Typically, India’s urban population looks down on the rural poor who ‘crowd’ the metropolitans.
India’s state economy statistics are eye opening. Eighteen out of 29 Indian states have populations greater than Sri Lanka’s. They vary between Uttar Pradesh’s 200 million to Haryana’s 25 million. Even the relatively tiny Kerala, roughly half the size of Sri Lanka, has a population of 33 million, out of which 52% are rural. Interestingly, only seven out of these 18 have a state GDP higher than Sri Lanka’s. Maharashtra tops the list with a $250 billion economy, but that can be largely attributed to the presence of India’s traditional commercial capital. Tamil Nadu’s economy is twice that of Sri Lanka, but with a population of three and half times more.
Get the picture. India’s overall economy is big, but that does not necessarily mean we start trading with a well-developed economy. State economies matter more. They are not necessarily more advanced, but stand on par. So it is more like doing business with a peer. Consumer markets, technology standards, skill levels, the cost of labour, types of labour (mostly unskilled), government regulations, ease of doing business (rather the difficulty), etc are similar in the two countries. Normally, trade agreements work with only one party having a serious deficiency that the other can easily fulfill. What can flow across borders when conditions on both sides are the same? That is a key question both Indian and Sri Lankan leaders must answer.
Finally, how a bilateral trade pact changes a country’s relationship with the rest of the world too is a concern. A trade agreement means preferential treatment. Countries that do not enjoy such treatment may see it as unfair. In our case, we should worry about how China may see ETCA. Not that business with Sri Lanka is a key business concern to the middle kingdom, but it can have political implications.
In a worst-case scenario, I see ETCA as Pandora’s box. Pandora opens a jar containing death and many other evils, which are released into the world. She hastened to close the container, but the whole contents had escaped except for one thing that lay at the bottom – hope. That is one thing we should never lose. With hope, things could never go bad.