Impact of Sri Lanka's free trade agreement with China on India

In October 2014 a free trade agreement (FTA) between Sri Lanka and China was announced with a time frame of June 2015 for signing the agreement. On the other hand, Sri Lanka and India have an FTA since 2000 and a CEPA between them is under negotiation. Thus, the emerging trade dynamics between India and Sri Lanka due to this FTA calls for an in-depth study. The present study attempts to do this. Using the global trade analysis project (GTAP) the study does a number of simulations by calibrating trade liberalisation scenarios between Sri Lanka and China and studies the impact of the proposed FTA on its partners and the consequent impact on India. The results show that Sri Lanka's trade with India would fall as it will find it beneficial to substitute goods of Indian origin with goods of Chinese origin. While Sri Lanka takes home mostly positive gains, India's loss due to this FTA are pretty much apparent.