South Asia

Why Connectivity Remains Central to India-Sri Lanka Ties

India has given insufficient weight to it in domestic policies and policy implementation.

Connectivity is much talked about in the context of regional integration and bilateral relations. For example, India proposed it as the theme for the Fourteenth SAARC Summit held in New Delhi in 2007. But insufficient weight is given to it in domestic policies and policy implementation.

Trade and people-to-people contacts are the ultimate manifestations of connectivity between countries. But infrastructure is what makes them possible.

Connectivity and infrastructure

For trade in goods to occur, ports, railways, highways, airports, etc., are essential. The soft infrastructure of trade agreements that reduce uncertainty, reasonable customs procedures, non-punitive immigration rules, etc., are also needed. In today’s context, low-cost and reliable ICT (information and communications technology) infrastructure is required for the soft infrastructure to function well.

Trade in services is less visible, but still depends on hard and soft infrastructures. It may be best explained using the example of medical services.

In Mode 1, the doctor is in India and the patient is in Sri Lanka, or vice versa. For the consultation to be conducted or the procedure to be done, high-quality, reliable data communication is essential. Because this is trade, the means of making the payment must also be in place.  Usually, doctors have to be certified to practice in a country. Some form of mutual recognition of credentials may be needed if the trade is to take place at scale.

In Mode 2, the patient will travel to the doctor’s location, say, the Apollo Hospital in Chennai. Regular air passenger services must be in place. Payments must be possible. It would be difficult to impose certification requirements on suppliers of services under Mode 2.

When many patients obtain services under Mode 2, a supplier may wish to provide services through Mode 3. In Mode 3, the supplier establishes a commercial presence where the demand is. Many patients from Sri Lanka arriving at the Apollo Hospital in Chennai led to the establishment of an Apollo Hospital in Colombo to provide medical services to patients in Sri Lanka more conveniently and at a lower cost.

Mode 3 trade in almost all cases is not limited to investment, but includes the physical presence of persons from the supplier’s home country. Safeguarding the brand and reputation of the supplier is the rationale.

Mode 4, wherein persons move across borders as part of services trade, is the most controversial. Here, the required hard infrastructure is primarily passenger transportation by efficient modes. Soft infrastructure includes mechanisms for enforcing immigration laws and allowing for the repatriation of earnings. Mechanisms for acceptance of the credentials of service providers is also necessary.

For most people-to-people contact, the infrastructure requirements are the same as for Mode 4 services trade. New forms such as contacts over social media are in addition. The prerequisite are ICT connectivity and unhindered access to platforms in both countries.

Representative image. Cranes unload imported iron ore from a cargo vessel at a port in Lianyungang, Jiangsu province, China October 27, 2019. Photo: Reuters/Stringer/File photo

If services trade occurs at a significant level between two countries, one may assume that the underlying connectivity infrastructure is present, and that goods trade and people-to-people contacts also occur at scale.

Trade in transportation and logistics services, electricity and the associated hard and soft infrastructures deserve a more detailed analysis.  Both transportation-logistics services and electricity services are currently traded across India’s borders, with the former being extremely important for present-day India-Sri Lanka relations and the latter playing a significant role in relations with Bangladesh, Bhutan and Nepal and with a potential in Sri Lanka. Both have the potential to grow and to knit the region together.

Also read: Adani Ports Announces It Is Developing Colombo Port WCT Project

Transportation, logistics services and infrastructure

Colombo is, in most years, the second largest port handling Indian containers, with around 70% of the boxes coming from or destined for Indian ports. Perhaps due to an early start in container handling or the 1998 establishment of an efficient container terminal through a public-private partnership with 85% private ownership, including participation by shipping lines, Colombo has for years been one of the most efficient ports in the South Asian region, after Singapore and others.

Given the mutual interdependence exemplified by the container transshipment business in the Colombo Port, efforts were made in the early negotiations on the India Sri Lanka Comprehensive Economic Partnership Agreement (later renamed as ETCA and still becalmed) to recognise the development of Port of Colombo as a services hub for South Asia as being in the interests of both countries and referred to the desirability of Indian investment in the port.

Colombo port. Credit: Asian Development Bank/Flickr CC BY-NC-ND 2.0

Colombo port. Credit: Asian Development Bank/Flickr CC BY-NC-ND 2.0

The Indian National Transport Policy Development Committee (NTPDC) report issued in early 2014 states:

The performance of Indian ports has generally deteriorated over the years except for a brief period from the late 1990s to the mid 2000s. The gap between the growth in traffic and growth of port capacity is apparently widening. Port traffic is expected to grow by about 40% from the current 914 million tonnes to about 1,279 million tonnes by the end of the 12th Plan.

Yet, the Colombo Port’s role in the Indian transport system is not recognised in the NTPDC report, in contrast to that recognition in the 2003 Joint Study Group Report on the India-Sri Lanka Comprehensive Economic Partnership Agreement.

The progressive vision of the joint study group has been eclipsed by nationalistic rhetoric on the Sri Lankan side and by the domestic focus of the NTPDC report and a reversion to the language of keeping Indian transshipment business in India, especially around the time of elections in southern India. If connectivity is a priority for knitting together the region through peaceful trade and interdependence, it is necessary to go back to the framework of mutual interdependence, if not through a comprehensive agreement, at least through sectoral agreements.

Also read: In Sri Lanka, India Must Do More Than Pay Lip Service To Tamil Concerns

Electricity trade and infrastructure

Bhutan and Nepal have enormous potential in terms of hydroelectricity. Electricity is among Bhutan’s major exports to India. Though smaller, Nepal is also engaged in cross-border trade. Grid interconnection and legal contracts are the necessary conditions for trade in electricity.

Because electrons are electrons wherever they are produced and because they must be generated at the time of consumption, trade in electricity is unlike conventional trade. Electricity simply flows from high potential to low potential. Though electricity is mostly exported from Bhutan to India, there are times when the flow is in the opposite direction.

Particularly since 2014, the Indian government has given priority to cross-border trade in electricity. The Asian Development Bank (ADB) funded a grid interconnector which made possible the sale of 500 megawatt (MW) from India to Bangladesh and laid the foundation for a regionally interconnected grid. The nature of electricity interconnection is such that both the supplier and the buyer are strongly interdependent. Even the notion of supplier and buyer are interchangeable, depending on climatic conditions and differing use patterns.

After promulgating rules to accommodate cross-border electricity trade in 2018, India recently revised them to place further conditions about which entities are entitled to engage in cross-border trade, specifically excluding entities with any Chinese stakes. The point is not on the right or wrong of the rules; the issue is about how rules governing cross-border trade should be made. Should they be made and enforced by the powerful country in the middle, or should they be developed with the participation of all and enforced collectively?

There is the theoretical possibility, in the BBIN (Bangladesh, Bhutan, India, Nepal) subregion, of Bangladesh buying electricity from Nepal and/or Bhutan, with India serving as a wheel-through operator. Ideally, all this will happen in the context of a regional power pool, but if that is too hard a goal, rapidly growing Bangladesh may still want to buy power through bilateral contracts. How will India look at this?  The Indo-centric approach embodied in the Central Electricity Authority rules do not bode well.

Regarding international regimes, there is the concept of the hegemon, a powerful country that supplies the collective goods needed for international regimes to function effectively. In South Asia, India is the most powerful country and the natural candidate for this role. The Gujral Doctrine, which, among other things, declined to impose reciprocity on the smaller neighbours, is the act of a hegemony.

In the case above, India is instead acting as an insecure power, using raw power to impose rules on the smaller neighbors. This is unfortunate because there is potential for linking the Sri Lankan grid to the South Indian grid for mutual benefit. India’s current approach to cross-border electricity trading is not likely to build the necessary confidence and allow the marginalisation of the xenophobes by reframing the relationship as one of interdependency.

Rohan Samarajiva is executive director of Colombo-based LIRNEasia.