Introduction
Sri Lankan economy was liberalized in 1977and agriculture, industry, and services sectors
were affected by this situation. The services sector was the highest contributor to Gross
Domestic Product (GDP) and agriculture and industry sector get second and third place
respectively. The contributions of agriculture, industry, and services sector were
approximately 27, 23 and 50 percent respectively in 1977. But today agriculture sector
contribution was 7 percent and industry and services sector contributions were almost
27 and 56 percent, respectively (Appendix 01).
Agriculture Sector
Most of the Asian’s countries economy based on agriculture sector due to their location.
Before 1960 the agriculture sector was the dominant sector in the Sri Lankan economy. Sri
Lanka comprises rural societies and one-third of the population based on the agriculture
sector. But today Sri Lankan agriculture sector performance is gradually decreased
(Appendix 03). Our agriculture sector can be divided into two sectors called domestic and
plantation industry. The contribution from the agriculture sector to GDP get higher value due to
favorable weather condition, export-oriented policy, and dual exchange rate system during the
1977. Mahaweli Development Program contributed to develop the agriculture sector and
increase paddy production during this period. After 1988 this project was lost due to
political changes and decreased the paddy production as a whole (Appendix 07).The
Contribution of the agriculture sector has been shown a decreasing trend. When considering the
1977/87 period contribution from the agriculture sector to GDP decrease by 11 percent. The most
important reasons were lousy weather condition, civil war situation within the country, and our
agriculture export demand dropped due to the global recession and increased the international
competitors. Agricultural sector contribution to GDP gradually decreased by approximately
25 percent during 1987/97 period due to the reduction of agricultural exports (Appendix 08). In
1998, Russia financial crisis, Kenya tea production development, and prolonged drought
caused to reduce our tea production. The depreciation of East Asian county’s currencies
caused to cut the rubber prices, and its demand and coconut production decreased due to
prolonged drought. Our primary crop production contribution to GDP contracted due to the above
reasons, and it caused the reduction of agriculture sector contribution (Appendix 03).In 2004,
The agriculture sector was profoundly affected by the tsunami disaster, and fishery sector and paddy
cultivation land destroyed from that. It was approximately 2175 hectares of rice paddies and
other crop production. When we consider the agriculture sector, we should pay attention to
the fishery and forestry sector also. Although Sri Lanka is located around the Indian Ocean
fishery sector contribution to GDP was 1.8 percent in 2015 and even today Sri Lanka import
fish production Mt 46516 but only export Mt 7490. Therefore Sri Lankan economists and
policymakers should pay attention to utilize these natural resources effectively. Agriculture
sector generates more employment opportunities and contributes to reducing poverty.
The employment rate of agriculture was 29 percent in 2015, and it’s higher than the industry
sector employment (Appendix 06). But the agriculture sector contribution to GDP was 8
Percent in 2015. Therefore the agriculture sector shows low productivity. Central Province
provides the highest agriculture contribution to GDP province wise. Every government
implements agriculture policies to accelerate the agriculture sector development. In 1986, the
food and nutrition policy was performed to identify the challenges to growth in domestic
agriculture and make various solutions and focus on food availability and food nutrition.
Agriculture Insurance Board introduced a cultivation insurance scheme for paddy in 1996 and
pension and social security benefit for farmers. Ministry of agriculture, land, and forestry
implemented the “Waga Lanka” program to face the global food shortage
in 2005. The former government implemented the “Api Wawamu Rata Nagamu” program and
reintroduce the fertilizer subsidy scheme. Present government introduce the Food Production
National Program for the period 2016 to 2018 to make Sri Lanka self-sufficient
In traditional local food and reduce the importation of food. The government should introduce new technology to the agriculture sector and provide financial support to develop this sector.
Industry Sector
Since 1977, the UNP government introduced the open economic policy, and it has encouraged
industrial sector growth. The contribution of the industry sector to GDP overtakes the agriculture
sector contribution after 1987 due to manufacturing sub-sector rapidly growth with market-oriented policies. Textiles, food and beverage, wood products, rubber, and plastic industries
have shown fast growth after 1977. The contribution of industry sector shows an increasing
trend during 1977/2016 period, and it shows many fluctuations (Appendix 04). When
Consider the 1977/87 period contribution from the industrial sector to GDP increased
approximately 17 percent due to manufacturing sector growth with the reasons of favorable
export-oriented policies, higher prices for manufacturing export production and suitable
environment for factory industry and small industries (Appendix 08).Mahaweli Development
Project construction caused to increase the contribution of the construction sector to GDP. But
the participation of the industry sector to GDP contracted 8 percent due to some reasons such as
power cut, inclement weather, lesser availability, and price increases of construction of
building materials. The contribution from the industrial sector to GDP rose from 27 to 32
percent from 1987 to 1997 due to a 27 percent growth rate of the manufacturing sub-sector
(Appendix 09). Reasons behind this growth were free availability of imported inputs and
capital goods, increase foreign direct investment, and favorable export-oriented policies. Food,
beverage and tobacco, textiles and chemical petroleum, rubber, and plastic products
contributed 83 percent of the growth of industrial output during this period. After 1997 the
contribution of the industry sector shows decreasing trend and grew lower rate due to these
reasons such as financial market and currency crisis in East Asia, decrease the export demand
and insecurity with war situation in Sri Lanka. Therefore foreign direct investment fell
and reduce the doing business confidence in Sri Lanka. The industrial sector contribution
decreased due to these reasons, such as the global economic crisis, increases commodity prices
and energy prices and tsunami disaster during the period 1997/2008. Industry sector grew
again with the end of civil war in Sri Lanka. But industry sector contribution to GDP was 27
percent in 2016 (Appendix 01).
Industry sector creates many job opportunities and reduces the unemployment rate in Sri
Lanka. Employments of the industry sector gradually increased relative to the agriculture sector
due to people unwilling to work in the agriculture sector. Therefore industry sector employment
increased (Appendix 06).
After 1977, the industrialization policy and privatization policy were implemented to develop the
industrial sector. In 1978, Export Development Board and export processing zone were
established. In 1995 industrial system was implemented. The former government introduced the
ten-year horizon development program (2006-2016), and one objective was industrial
development. Present government implements an export-oriented industrialization strategy to
develop the industrial sector.
Service Sector
The service sector has been a significant partner of economic growth over the last decades, and the
contribution from the services sector to GDP was nearly 60 percent. When a country is
developing, the economic structure may change from agriculture to industry and the service
sector. The contribution of the service sector to GDP rose from 50 to 56 percent from 1977 to
2016 (Appendix 01).Since 1977, the services sector has been shown an increasing trend (Appendix
05 ). Wholesale and retail trade sub-sector was the highest contributor since 1977 to up to
now. Transport and telecommunication sector proliferating with new technologies and get
a second place within the services sector according to GDP contribution. The services sector provides
the 45 percent employment out of total labor force and creates many job opportunities for
skilled workers (Appendix 06). Today the services sector is a dominant sector in many Asian
countries such as India, Singapore, and China. When we consider the 1977/80 period, services
sector contribution to GDP rose due to these reasons such as increase import trade, expansion
of transport service, development of banking and other financial services and hotel and
restaurant services. Sri Lankan civil war situation, bad weather condition, tsunami disaster, and global recession were the reasons for the lower level growth of service sector from
1987/2005 period. The services sector grew after 2005 due to expansion of infrastructure
facilities such as telecommunication, road and transport, and electricity, etc. Other service
activities also have been shown an increasing trend (Appendix 05). Today Sri Lanka promote
many services related events with developing infrastructure facilities, human development,
and providing a favorable regulatory environment. Since 1977, every government developed
infrastructure facilities such as expressway, airport, and harbors. Sri Lanka can improve the
service sector by providing better education service and introducing new technologies and
innovations.
Structural Change of Sri Lankan Economy
When a country experiences economic development, its commercial structures tend to change. The distribution of the country’s economic output shifts from agriculture to industry and
then to services sector with this structure change. Sri Lanka also facing this structure changes
in the economy due to the development of industry and services sector (Appendix 02). There is a
significant relationship between agriculture, industry, and services sector. As an example, the
performance of the processing industries such as tea, rubber, and coconut performance depends
on the production of plantation crop. When a manufacturing sector is developing services
related activities such as wholesale and retail trade, transport services and telecommunication
and banking and financial services are expanding.
Comparison with other countries
Singapore is a developed nation today, and their dominant economic sector is the services sector
which has not large natural resources endowment. Therefore they promote industrial and
services sector relative to the agriculture sector. In 1977, the agriculture sector was the dominant
sector in India, and it has changed to services sector today. Industry sector was the dominant
sector in China economy, and today the services sector is the dominant sector. Singapore is mostly
corruption-free government, and it has the skilled workforce and efficient infrastructure facilities.
Therefore this country could develop quickly (Appendix 10).
