Mumbai, Apr 18 (PTI) Stating that Sri Lanka accounts for just 64 bps of India’s Exim trade that crossed USD 1 trillion in FY22, a rating agency report said the deepening economic crisis in the island nation has no material impact on domestic companies.
The island nation has been on the boil since March with depleted forex reserves that led to Colombo announcing a sovereign default on all its external debt of USD 44 billion last week.
The crisis is so bad that its schools are shut for want of notebooks and ink, newspapers stopped publishing for want of newsprints and there is food, fuel and power rationing in the Indian Ocean nation that has been heavily dependent on tourism but was singed by the Easter bombings by Islamic militants in 2019 and then the pandemic.
On top of it, the Sri Lankan rupee, which was valued at 195 to a US dollar before the crisis, depreciated sharply and is currently trading around 325 per dollar.
India’s merchandise exported crossed USD 418 billion in FY22, services exports crossed USD 250 billion, taking the overall exports to USD 670 billion, and merchandise imports crossed USD 611 billion.
The ongoing economic crisis in Sri Lanka is unlikely to cause any material impact on credit profiles companies operating there, primarily because of the minimal trade (0.64 per cent) and low contribution to revenue from their operations in the island nation, Crisil said in a note on Monday.
For the 11 months of fiscal 2022, exports to and imports from Sri Lanka totalled USD 5.9 billion, or just 0.64 per cent of the total trade (USD 611 billion of imports and USD 418 billion of exports). Exports to Lanka at USD 5 billion, account for just 1.3 per cent of India’s total merchandise shipments. The numbers remained range-bound in the past three fiscals, Crisil added.
Of the top 50 countries with which India trades, Lanka is ranked 38 or 39 in the past three fiscals. Coffee, tea, sugar, cotton, cereals, edible fruits and nuts, rubber, animal, vegetable fats, paper pulp and other agro-products account for 30 per cent of the total trade (both imports and exports) with Lanka.
Given the substitutable nature of products traded in and the limited share in overall trade, the ongoing crisis is unlikely to have any major impact on domestic companies. However, a few auto and FMCG companies could see some impact due to their modest operations there and so could on few shipping companies that depend on feeder cargo activity, the report said.
On the other hand, tea and ready-made garment exporters can benefit from improved demand from elsewhere, or higher realisation, as supplies from Lanka dwindle, it added.
Colombo is a major transhipment hub for the whole of South Asia, including India, thanks to its natural locational advantage and competitive pricing. But because of fuel shortage, this can be diverted to other ports, including India.
However, on the flip side Indian shipping lines, which carry cargo from smaller ports to Colombo, may see some impact due to the change in sea routes of mainline operators to any other port. To replicate this shift may not be cost-effective for some shipping companies and hence the impact will vary on a case-to-case basis.
Conversely, ports in India, particularly those on the Southern and Eastern coasts, are expected to benefit from the diversion of transhipment and other shipping activities from Colombo. PTI BEN BAL BAL
