BILATERAL AGREEMENTS

• Several bilateral agreements provide a strong legal framework for developing the economic relationship such as the bilateral Free Trade Agreement, Double Taxation Avoidance Agreement, Bilateral Investment Protection and Promotion Agreement. There are also bilateral agreements/MoUs on air services, agriculture, small development projects, cooperation in economic projects. In addition, there are several cooperation agreements in the sectors of small-scale industries, tourism, telecom and IT, peaceful uses of nuclear energy and for cooperation in the field of science and technology.

India-Sri Lanka Free Trade Agreement (ISFTA)

• The India-Sri Lanka Free Trade Agreement (ISFTA) was signed in 1998 and entered into force in March 2000. The ISFLTA took into account asymmetries between the two economies, local socio-economic sensitivities, necessity of safeguard measures to protect domestic interests. In a nutshell, India sought to do more without insisting on strict reciprocity from Sri Lanka. This is reflected in the respective obligations of the two countries under the ISLFTA, where India agreed to open more tariff lines upfront and within a shorter time span of three years as against smaller and more staggered openings by Sri Lanka which was provided a longer time period of eight years. 

• As a result of ISLFTA, currently 4150 Indian tariff lines have been made zero duty for Sri Lankan exports to India. Similarly, 3932 tariff lines have been made zero duty for Indian exports to Sri Lanka. In addition to these steps, India has offered quotas to Sri Lanka on certain tariff lines (a) 15 million tonnes of tea (5 tariff lines) with 50% margin of preference and no port entry restrictions since June 2007; (b) Textiles, where there is a 25% tariff reduction for 528 Textile items; and (c) Garments where there is 50% margin of preference on 8 million pieces over 233 tariff lines. The garments quota terms have been further liberalized through a MoU on 05 October 2007 following which the Government of India issued a Custom Notification No. 52/2008 dated 22 April 2008 giving immediate effect to the MoU. As a result, India reduced duty to zero and removed restrictions on entry ports and sourcing of fabrics from India for 3 million pieces of apparel from Sri Lanka. India has also removed port restrictions on the remaining 5 million pieces of apparel. These 5 million pieces of garments will be allowed to enter India at zero duty or Margin of Preference of 75% depending on the product category, provided that they are manufactured using Indian made fabrics. 

• As of now, 1180 tariff lines remain in the Sri Lanka’s negative list that includes agriculture/livestock items, rubber products, paper products, iron and steel, machinery, and electrical items. On the Indian side, there are 429 items in the negative list, which include garments, plastic products and rubber products etc.

• ISFTA Rules of Origin: In order to receive ISFTA benefits, the merchandise exported between India and Sri Lanka should comply with the following Rules of Origin criteria:

1. Wholly Obtained Products - All wholly obtained products such as tea, fish, spices etc. will be able to enjoy duty free benefits in each other's markets, provided they are eligible for duty concessions.
2. Products not Wholly Produced or Obtained - These include the products manufactured using imported raw materials. In order to enjoy ISFTA benefits, the products should comply with the following criteria:
   • The Domestic Value Addition (DVA) in the exporting country should not be less than 35% of the FOB value of the finished product and
   • HS Codes of the imported raw materials and the finished products should be different at 4-digit level. (Change of Tariff Heading criteria)

• Cumulative Rules of Origin: The Cumulative Rules of Origin encourage the contracting states (India and Sri Lanka) to source raw materials needed for their exports from each other. Accordingly, an exporter has to show only a minimum DVA of 25% of the FOB value of the finished product, provided the raw materials imported from the other contracting state accounts for not less than 10% of the FOB value of the particular product. (In other words, the aggregate value addition should not be less than 35% of the FOB value of the finished product, while the DVA in the exporting country should be minimum 25% of the FOB value).

• Under SAFTA, the Rules of Origin and Cumulative Rules of Origin are slightly different and the SAFTA agreement text must be consulted before making use of this provision.

• Operational Certification Procedures (OCP): Both ISLFTA and SAFTA specify Operational Certification Procedure for obtaining Certificates of Origin (COO) to make products eligible for concessions in the country of export under the relevant agreements. These must be carefully consulted and followed. The validity of the COO under SAFTA is 12 months and can be issued within 3 working days of the shipment of the product.

• For ISLFTA it is advisable to obtain COO before the consignment is shipped to avail benefits under the ISLFTA.

Designated authority for the issue of certificates of origin

In Sri Lanka:

Director General of Commerce,

Department of Commerce,

4th Floor, Rakshana Mandiraya,

21, Vauxhall Street,

Colombo-02.

Tel: 94-11-2329733

Fax: 94-11-2430233

E-mail: fortrade@doc.gov.lk

In India:

Export Inspection Council of India

(Department of Commerce)

(Ministry of Commerce & Industry, Government of India)

3rd Floor, NDYMCA Cultural Centre Building,

1, Jaisingh Road,

New Delhi-110001.

Tel: +91-11-23341263/ 23748189/ 23365540

Fax: +91-11-23748024

E-mail: eic@eicindia.gov.in

Website: www.eicindia.gov.in  

• For more information on ISFTA please visit:

Department of Commerce, Govt. of Sri Lanka - http://www.doc.gov.lk/  

Department of Commerce, Govt. of India - https://commerce.gov.in/international-trade/trade-agreements/india-sri-lanka-fta/

High Commission of India, Colombo - hcicolombo.gov.in

South Asian Free Trade Area (SAFTA)

• The Agreement on South Asian Free Trade Area (SAFTA) came into force from 1st January, 2006. India, Pakistan and Sri Lanka are categorized as Non-Least Developed Contracting States (NLDCS) and Bangladesh, Bhutan, Maldives, Afghanistan and Nepal are categorized as Least Developed Contracting States (LDCS). With SAFTA in force, the concessions under SAPTA signed in 1995 ceased in respect of Sri Lanka and India as they are classified as NLDCS. 

• Article 7 of the SAFTA Agreement provides for a phased tariff liberalization program (TLP) under which, in two years, NLDCS would bring down tariffs to 20%, while LDCS will bring them down to 30%. Non-LDCS will then bring down tariffs from 20% to 0-5% in 5 years (Sri Lanka 6 years), while LDCS will do so in 8 years. NLDCS will reduce their tariffs for LDCS products to 0-5% in 3 years. This TLP would cover all tariff lines except those kept in the sensitive list (negative list) by the member states.

• The salient features of the four Annexes of SAFTA Agreement are as under:

• Rules of Origin: For giving preferential access to the Member Countries under SAFTA, the goods should have undergone substantial manufacturing process in the exporting countries. The substantial manufacturing processes are defined in terms of twin criteria of Change of Tariff Heading (CTH) at four-digit Harmonized Coding System (HS) and value content of 40% (30% for LDCS).

• Apart from the general rules, SAFTA provides for Products-Specific Rules (PSR) for 191 tariff lines to accommodate the interest of LDCS given their limited base for natural resources and undiversified industrial structure. The Products Specific Rules have been provided clearly on technical grounds i.e. where both inputs and outputs are at the same four-digit HS level.

• Sensitive List or Negative List: Bangladesh has 1,233 products on the sensitive list for LDCS and 1,241 for the NLDCS under the SAFTA. India has 480 items on the sensitive list for the LDCS and 868 for the non-LDCS. Bhutan has 150 items for both LDCS and non-LDCS. Nepal has 1,257 items for LDCS and 1,295 for non-LDCS. The Maldives has 681 for all seven SAFTA nations. Pakistan had 1,169 in its sensitive list, Sri Lanka has 1,042 and Afghanistan has 1,072 items on the negative list.

Comprehensive Economic Partnership Agreement (CEPA)

• Following the FTA, the two Governments were encouraged by its positive outcomes and success, and felt that more action was required to unleash the full potential of our bilateral economic relations. Accordingly, during the visit of Prime Minister of Sri Lanka to India in June 2002, the two governments decided to set up a Joint Study Group to explore possibilities of starting negotiations for a CEPA, modeled on the India-Singapore CECA. Based on the report of the JSG in October 2003, the two countries began negotiations on a CEPA in early 2005. Even though CEPA negotiations were completed, the agreement was not signed.

The Economic and Technology Co-operation Agreement (ETCA)

• To further broaden the scope of FTA and to strengthen the economic, trade, investment and technology cooperation between India and Sri Lanka, ETCA was proposed and negotiations were conducted. Economic and Technology Co-operation Agreement (ETCA) covers both goods and services. Eleven rounds of negotiations have been completed so far.

BILATERAL TRADE

Bilateral Merchandise Trade Figures (US$ Million)

Source: Central Bank of Sri Lanka

Percentage of Trade with India in Sri Lanka’s Total Merchandise Trade

Source: Central Bank of Sri Lanka

Source: Sri Lanka Customs

INVESTMENTS

• India is among the top investors in Sri Lanka with a number of leading companies from India having invested and established their presence in Sri Lanka. According to the Central bank of Sri Lanka, the total FDI from India so far exceeds US$ 2.2 billion. In 2021, India was the largest source of FDI which amounted to US$ 142 million. The major investments from India continued to be in the areas of petroleum retail, tourism & hotels, manufacturing, real estate, telecommunications, banking and financial services.

CONCESSIONAL FINANCING PROJECTS IN SRI LANKA

• India has provided concessional financing of over USD 2 billion to Sri Lanka through the various Lines of Credit (LoC) funded by EXIM Bank of India for various projects, especially in the Railways Sector.

Line of Credit of USD 150 million: In 2004, a LoC of US$ 150 million for export of petroleum products was provided by India to Sri Lanka. This LoC has been disbursed and repaid by GoSL.

Line of Credit of USD 100 million for Defence: Under this, 500 SUVs are to supplied for Sri Lankan law enforcement agencies and armed forces. The first batch of 125 SUVs were handed over in December 2022.

Line of Credit of USD 167.40 million for upgradation of Coastal Railway Track: The upgradation of tsunami-affected Southern Railway line was undertaken under this Line of Credit. The up gradation of the 118 km Coastal Railway track from Kalutara to Matara was undertaken through two LoCs amounting to USD 100 million and USD 67.4 million signed in July 2008 and March 2010, respectively. Projects under these LoCs included track laying on the Kalutara-Galle and Galle-Matara sector by IRCON; supply of locomotives, supply of 20 Diesel Multiple Units train sets; training of nearly 600 personnel of the Sri Lanka Railways, and setting up of a maintenance facility by RITES. The project was completed in April 2012, four months before schedule.

Line of Credit of USD 416.39 million for upgradation of Northern Railways: This LOC was sanctioned in 2009 and projects commissioned under it have been completed. Such projects include:

• Track laying from Omanthai to Pallai at a cost of USD 185.35 million
• Track laying on the Madhu Church - Tallaimannar sector at a cost of USD 149.74 million has been undertaken except construction of the Tallaimannar Pier. The project was inaugurated by Prime Minister on 14 March 2015 during his visit to Sri Lanka.
• Track laying on Medawachchiya - Madhu Railway line at a cost of USD 81.30 million

Line of Credit of USD 382.37 million for upgradation of Northern Railways: This Line of credit was sanctioned in 2010. Following projects have been undertaken under this Line of credit:

• Track laying on the Pallai- Kankesanthurai sector at a cost of USD 149.34 million
• Setting up of signaling and telecommunications systems for the Northern Railway line by IRCON at a cost of US$ 86.52 million
• Procurement of rolling stock such as Diesel Multiple Units, locomotives, Container Carrier Wagons, Fuel tanks is underway. Bus Engines Kits have also been procured by government of Sri Lanka under this Line of credit.

Line of Credit of USD 318 million for Sri Lankan Railways: LoC Agreement was signed on in June 2017 for undertaking railway projects in Sri Lanka. Several projects have been identified under the LoC such as procurement of passenger coaches, and other rolling stock by Sri Lanka railways; up gradation of tracks and signaling systems; and expansion of the Rathmalana Workshop etc., which are at various stages of implementation.

Line of credit for USD 45.27 million for rehabilitation of Kankesanthurai Harbour (KKS): Line of Credit Agreement was signed on 10 January 2018. Four out of the six phases of the rehabilitation of KKS port have already been completed under India’s grant assistance. The current LoC is for the remaining two phases involving works relating to installation of port infrastructure facilities etc. After completion of this project, KKS Harbour could be fully used as a commercial port, facilitating movement of cargo between Southern India and Sri Lanka.

Line of Credit of USD 100 million for Solar Projects in Sri Lanka: A line of credit for USD 100 million was announced for Sri Lanka during visit of President of Sri Lanka to New Delhi in March 2018 for the Founding Conference of the International Solar Alliance. The LoC Agreement  signed in June 2021. Sri Lanka signed the International Solar Alliance Agreement on 31 January 2018. Ratification was done in February 2018.

Two more Lines of Credit of USD 400 million for infrastructure and USD 50 million for Defence have been extended to the Government of Sri Lanka, however, LOC Agreements are yet to be signed.

In addition to the above Lines of Credit, the following assistance was extended in the year 2022 to deal with the economic crisis:

• USD 500 million Line of Credit for purchase of petroleum products in February 2022.

• USD 1 billion concessional credit facility in March 2022 for purchase of essential items such as food, medicine etc.

• A USD 55 million Line of Credit for supply of urea fertilizer in June 2022.

• Deferment by RBI of about USD 2 billion payment liabilities by Central Bank of Sri Lanka under the Asian Clearing Union mechanism, for January-June 2022.

• Currency swap of US$ 400 million in January 2022 between CBSL and RBI.

BUYER'S CREDIT PROJECTS

• India is partnering Sri Lanka in its endeavour to provide access to clean water and sanitation. As a part of this effort, some water projects in Sri Lanka are being funded by the EXIM Bank of India under Buyer’s Credit scheme such as the:

• Greater Dambulla Water Supply Project (Value of Buyer’s Credit: US$ 60.69 million): completed by an Indian company M/s V A Tech Wabag Limited.
• Aluthgama, Muthugama Water supply project (US$ 164.9 million): being implemented by M/s Ion Exchange Ltd.

• Polgahawela, Pothuhera Water Supply Project (US$ 91.8 million): being implemented by M/s V A Tech Wabag Limited.

OTHER ECONOMIC ENGAGEMENTS

MOU for Cooperation in Economic Projects: A Memorandum of Understanding (MoU) for cooperation in economic projects was signed between India & Sri Lanka on 26 April 2017 during the visit of Prime Minister of Sri Lanka to India. The MoU identifies specific projects and provides an overall framework for further strengthening bilateral development partnership.

MOU on Ferry Service: A MOU was signed on07 January 2011 between India and Sri Lanka on passenger transportation by sea. The MoU envisages ferry services between Colombo and Tuticorin and Talaimannar and Rameswaram. The ferry service between Colombo and Tuticorin started operations on 13 June 2011 but was discontinued by the operator in November 2011. Resumption of these services would be an important step in the restoration of the traditional links between the two countries.

MOU on Agriculture: A MOU between the Government of India and the Government of Sri Lanka on Cooperation in the field of Agriculture was signed on 17 January 2012 by High Commissioner and Secretary, Ministry of Agriculture of Sri Lanka during the visit of External Affairs Minister to Sri Lanka. Under the MOU, both sides shall promote development of cooperation in the agreed fields to be effected through biennial Work Plans and joint activities in areas like agricultural crops, agricultural extension, horticulture, agricultural machinery, post-harvest technology, plant quarantine measures, credit and cooperation. The Work Plan for 2015-16 was signed during the visit of President of Sri Lanka H.E. Maithripala Sirisena to India in February 2015.

MOU on Telecommunications: A MOU was signed on 17 January 2012 by the Chairman, Telecom Regulatory Authority of India (TRAI) and the Director General, Telecommunication Regulatory Commission of Sri Lanka (TRCSL). The MoU provides for establishing a mechanism of technical and institutional cooperation in the field of telecommunications, with the purpose of development of telecommunications in both the countries.

Cooperation in IT: The visit of the then Minister of Law & Justice and Electronics & IT, Shri Ravi Shankar Prasad in January 2018 witnessed significant outcomes in bilateral cooperation in the IT sector including the signing of an MOU on cooperation in Electronics & IT covering e-Governance, m- Governance, e-Public Services Delivery including e-learning, telemedicine, cyber security etc. Sri Lanka became the first SAARC country to join the National Knowledge Network (NKN) which enabled Sri Lankan Universities to have digital access to around 1600 universities in India & beyond. A pilot program on e-Office, developed by NIC was also launched, where an e-Gov documentation was digitally signed for the first time in the Sri Lankan public sector.

Palaly Airport: Under the MOU concluded in November 2005 with Sri Lanka, Government of India extended grant assistance for the rehabilitation of runway and basic infrastructure at the Palaly Airfield. In January 2016, a technical team from Airports Authority of India (AAI) visited the country, at Sri Lanka’s request, for operationalization of regional commercial passenger flights from Palaly. AAI submitted a pre-feasibility study for development of Palaly airport in August 2016 and the regular flights commenced between Chennai and Palaly in November 2019. However, this service was suspended temporarily due to the pandemic related restrictions. After nearly three years, the regular direct flights between Jaffna and Chennai resumed since 12 December 2022.

Launch of South Asia Satellite (SAS): South Asia satellite was launched on 05 May 2017. Sri Lanka was the first country that agreed to be part of SAS. Following the launch of South Asia Satellite, Prime Minister of India had a video conference with the leaders of participating countries including the President of Sri Lanka. SAS is being used by the participating countries free of charge for communications and broadcasting applications such as Direct-to-Home television, VSAT terminals, tele-education, tele-medicine and disaster management support.

Civil Nuclear Cooperation: During the visit of President of Sri Lanka to India in February 2015, a bilateral agreement on Civil Nuclear Cooperation was concluded. The MOU entered into force in June 2015. The Agreement provides for establishment of a Joint Committee to identify the specific areas of cooperation between India and Sri Lanka. The areas of mutual interest include applied nuclear research, production and use of radioactive isotopes in industry, healthcare, agriculture, water management, etc. The Joint Committee has been constituted on both sides and the first round of JWG was held in Mumbai in November 2016.

Science and Technology Cooperation: India - Sri Lanka cooperation in the field of Science & Technology covers a wide variety of areas. There has been a regular exchange of scientists & experts apart from know-how sharing. Since 2011, our bilateral cooperation in Science & Technology has been steered through the India-Sri Lanka Joint Committee on Science & Technology (JCST) and it has held five meetings so far. The last meeting of the Committee was held in January 2022 virtually, during which both sides reviewed the ongoing collaborative activities in the 9 areas spanning food technology; plant base medicines; meteorology; space research & applications, robotics & automation; industrial electronics, renewable energy; waste management; information and communication technology.

MOU on Hybrid Renewable Energy: A MOU on implementation of Hybrid Renewable Energy based Power Projects on three Islands off Jaffna was signed between India and Sri Lanka in March 2022.

MOU Fisheries Harbours: A MOU on cooperation in development of Fisheries Harbours in Sri Lanka was signed in March 2022.

Training Programmes

• India provides training opportunities to over 400 officials in Sri Lanka annually for skill development and capacity enhancement under the Indian Technical and economic Cooperation Programme (ITEC). These training programmes are fully funded by Government of India and cover a wide variety of subject matter ranging from IT to Rural Development, Government Procedures to Entrepreneurship, and Banking to Engineering.

• For more information kindly check the following link https://www.itecgoi.in/index