India’s Expanding Economic Cooperation Arrangements in Asia

India has reduced its sensitive list of products for the Least Developed Countries (LDC’s) under the agreement on the South Asia Free Trade Area (SAFTA) from 480 to 25 tariff lines. This means that Afghanistan, Bhutan, Nepal and most importantly Bangladesh will enjoy a significant competitive advantage over Sri Lankan businesses in accessing the rapidly growing Indian market. (Sri Lanka is ineligible for such preferences as it is a lower middle income country.) Local entrepreneurs have already invested in Bangladesh to take advantage of lower costs and the trade preferences enjoyed by that country as a LDC. Bangladesh’s increased preferential access to the Indian market is likely to increase the momentum of such investment and accelerate the loss of growth, employment and incomes experienced by Sri Lanka.