INDIA-SRI LANKA ECONOMIC AND TRADE ENGAGEMENT

OVERVIEW:

• India and Sri Lanka enjoy a vibrant and growing economic and commercial partnership, which has witnessed considerable expansion over the years. The entry into force of the India-Sri Lanka Free Trade Agreement (ISFTA) in 2000 contributed significantly towards the expansion of trade between the two countries. Sri Lankan exports to India have increased substantially since 2000 when ISFTA came into force and more than 60% of Sri Lanka’s total exports to India over the past few years have used the ISFTA benefits. Only about 5% of India’s total exports to Sri Lanka in the past few years have used the ISFTA provisions, thereby indicating their overall competitiveness in the Sri Lankan market.
  
  
• Economic ties between the two nations also include a flourishing development partnership that encompasses areas such as infrastructure, connectivity, transportation, housing, health, livelihood and rehabilitation, education, and industrial development. The B2B commercial partnership is also diverse across sectors such as energy, tourism, hospitality, infrastructure, F&B, textiles etc.
  
  
• India has been among Sri Lanka’s largest trading partners. In FY 2025-26,the overall bilateral merchandise trade was to the tune of US$ 7.1 billion with India’s exports to Sri Lanka having increased by 21.23% as compared to the FY 2024-25. (Source: Department of Commerce, GoI). The growth of Sri Lankan exports to India has also been significant with India emerging as the second largest market for Sri Lankan exports (Source: Export Development Board). Since 2020-2021, Sri Lankan exports have grown from 640 million USD to over 1.6 billion USD. This is an increase of 160% in a span of five years. Indian exports have also grown by 58% during this period.
  
  
• India is also one of the largest contributors to Foreign Direct Investment in Sri Lanka. According to the Central bank of Sri Lanka, the total FDI from India so far exceeds approx US$ 2.8 billion (Source: CBSL Annual Report 2025). The main investments from India continued to be in the areas of petroleum retail, tourism & hotels, manufacturing, real estate, telecommunications, banking and financial services. This figure does not include investment routed by Indian companies from third countries, hence the overall investment numbers are likely to be larger.
  
  
• As a co-Chair of the Official Creditor Committee, India supported Sri Lanka in conclusion of its debt restructuring agreements.
  
  
• Apart from the growth in trade and investment, India has been the largest source market of tourists visiting Sri Lanka. India remains the largest source market for Sri Lankan tourism by a significant margin, accounting for approximately 531,511 arrivals in 2025. This represents a robust recovery and growth trajectory, with a 27.47% increase from 2024 and a 25.09% increase from 2018. The consistent growth from pre-pandemic levels indicates that India is not only a resilient market but also one with immense potential due to its proximity and strong cultural and economic ties. In the year 2025, the top source markets for Sri Lanka were led by India, contributing approx 22.50% of the total tourist arrivals.Over the first five months of 2026, India strengthened its position as the leading market, growing from 204,060 (Jan to May 2025) to 250,260 arrivals (a 22.6% increase)(Source: SLTDA statistics).
  
  
• Air Connectivity: Both the countries share vibrant air connectivity through operation of major airlines such as Air India, Sri Lankan Airlines and IndiGo. IndiGo emerged as the largest foreign carrier operating out of Sri Lanka in 2025.IndiGo’s expanded operations include flights to Colombo and Jaffna, two of Sri Lanka’s most prominent cities, from major Indian hubs like Mumbai, Bangalore, Chennai, and Hyderabad. In March 2026, Indigo started direct flights between Delhi and Colombo with six weekly flights.SriLankan Airlines currently operates close to 90 weekly flights between the two countries, connecting Colombo with major Indian cities such as Chennai, Mumbai, Delhi, Bengaluru, Hyderabad, Kochi, Madurai, Thiruvananthapuram and Tiruchirappalli.FitsAir officially commenced direct operations between Colombo and Ahmedabad on June 19, 2026, becoming the only airline to offer non-stop flights between the two cities. 
  
  
• Ferry Services: Since its resumption in August 2024, the ferry service between Nagapattinam and Kankesanthurai has facilitated the movement of over 15,000 passengers, reinforcing cultural, economic, and social exchanges between the two countries. It stands as a key milestone in revitalizing maritime connectivity between India and Sri Lanka. In June 2025, the Government of India decided to further extend the financial assistance for another year to support the ongoing passenger ferry service between Nagapattinam and Kankesanthurai. This extension is in line with India’s continued commitment to enhancing regional connectivity and strengthening people-to-people linkages between the two nations. The financial support is being extended under the Viability Gap Funding (VGF) mechanism, amounting to over LKR 300 million annually (approx. LKR 25 million per month). It is aimed at ensuring the affordability and operational sustainability of the service by covering key logistical and operational costs, on terms similar to the previous year. The continuation of the financial support for the ferry service also aligns with the shared vision for enhanced maritime connectivity, as reaffirmed during the visit of the President of Sri Lanka to India in December 2024 and the visit of the Prime Minister of India to Sri Lanka in April 2025.

BILATERAL AGREEMENTS

• Several bilateral agreements provide a strong legal framework for developing the economic relationship. There are also bilateral agreements/MoUs on air services, agriculture, small development projects, and cooperation in economic projects.

India-Sri Lanka Free Trade Agreement (ISFTA)

• The India-Sri Lanka Free Trade Agreement (ISFTA) was signed in December 1998 and entered into force in March 2000 with the overall objective of facilitating and enhancing trade relations between the two countries in order to broaden economic integration and realize potential benefits thereof.

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).

The Economic and Technology Co-operation Agreement (ETCA)

• To further broaden the scope of ISFTA into a modern and upgraded FTA with areas such as trade facilitation etc. and to strengthen the economic, trade, investment and technology cooperation between India and Sri Lanka, an Economic and Technology Co-operation Agreement (ETCA) was proposed and negotiations have been conducted. So far, 14 rounds of negotiations have been held with the 14^th round of negotiations held on 24-26 July 2024 in Colombo.

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)

2025-2026

Top Ten Imports to India

Top Ten Exports from India

(Source: Department of Commerce, GoI)

INVESTMENTS

• India is also among the top sources of investment for Sri Lanka and was the largest source of FDI inflow during the last four years.  Existing Indian investments in Sri Lanka are valued at approximately US$ 2.8 Billion and continue to grow with upcoming projects and initiatives.  Apart from the growth in trade and investment, India has been the largest source market of tourists. A number of leading companies from India have invested and established their presence in Sri Lanka. In 2024, the significant investments from India to Sri Lanka have been the inauguration of the ITC Ratnadipa, the Colombo West International Terminal and CEAT’s acquisition of Camso Brand and manufacturing facilities from Michelin. In April 2026, Mazagon Dock Shipbuilders Ltd secured a 51% controlling stake in Colombo Dockyard PLC for approx USD 26.8 Million.

CONCESSIONAL FINANCING PROJECTS IN SRI LANKA

• Our overall development assistance to Sri Lanka stands at over 7.5 billion US dollars, including grants and LoCs and emergency assistance of USD 4.1 Bn. Projects covered under LOCs include supply of petroleum products, railway projects, defence, supply of rolling stocks, port development etc.
  
  
• Sri Lanka faced an unprecedented economic crisis in 2022. India provided assistance of approx USD 4 billion which enabled supplies of key essentials such as petroleum products, fertilisers, food products, medicines etc. The assistance also included a swap arrangement between the Central Bank of Sri Lanka and Reserve Bank of India. India was the first country to extend support to Sri Lanka by providing financing assurances to the IMF, as detailed below:
  
  
• 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.
  
  
• Currency swap of USD 400 million extended to the Central Bank of Sri Lanka (CBSL) by the Reserve Bank of India (RBI) and Deferment of payment of liabilities of approx USD 2 billion under the Asian Clearing Union (ACU) mechanism by CBSL to RBI in 2022 (restructured into a single liability of USD 2.6 billion under Special Swap Agreement, including about USD 200 million in interest payments].

Key Projects

• Signaling works from Maho to Anuradhapura:  The project involves installation of an advanced Signaling and Telecommunication system for Sri Lankan Railways. The project was inaugurated during the state visit of the Prime Minister to Sri Lanka in April 2025. The work is progressing as per schedule and will be completed this year.
  
  
• Track rehabilitation from Maho- Omanthai:     The project was also inaugurated during the state visit of the Prime Minister to Sri Lanka in April 2025. The project has been completed.
  
  
• Solar Electrification of Religious Places:           This was a part of India’s assistance of USD 17 million aimed at installing Solar PV Rooftop Systems in 5000 religious sites across Sri Lanka. The project is designed to reduce energy costs for these institutions while bolstering Sri Lanka’s transition to clean energy.The 5,000 solar rooftop systems will be installed across all nine provinces and 25 districts of Sri Lanka, covering major religious sites representing Buddhism, Hinduism, Christianity, and Islam. Around 4,900 solar rooftop systems have been installed.

BUYER’S CREDIT PROJECTS

• India is partnering with 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:
  
  
• 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.

UPI QR based Payment System:

As a partnership between NIPL and LankaPay, UPI QR based payment was launched in Sri Lanka in February 2024. The use of UPI by Indian tourists will contribute to the ease of Indian tourists and strengthen the tourism ecosystem in Sri Lanka.

Protocol to amend DTAA

The Protocol amending the Agreement between India and Sri Lanka ("the DTAA") was signed during the visit of Hon. President of Sri Lanka to India in December 2024. The protocol would incorporate important international standards on prevention of treaty abuse in the DTAA. These provisions include an update preamble that specifies that the DTAA shall not create opportunities for "double non-taxation" or reduced taxation, and also includes a Principal Purpose Test (PPT) to ensure that treaty benefits are not misused.

Exchange of MoUs

During the State visit of PM to Sri Lanka in April 2025, the following MoUs were exchanged:

• MoU on Cooperation in the field of Health and Medicine:   This is a broad umbrella MoU that supports comprehensive collaboration between the respective Ministries of Health in a number of areas, by pooling technical, scientific, financial and human resources involved in health care, medical education & training and research in both countries. The scope of cooperation includes important areas such as maternal & child health, non-communicable diseases, communicable diseases, digital health etc. Pursuant to the signing of the MoU, a Joint Working Group will be convened, at the level of Secretary.
  
  
• MoU on Pharmacopoeial Cooperation between the Indian Pharmacopoeia Commission and The National Medicines Regulatory Authority of Sri Lanka:                   The main thrust of this MoU is on the recognition of Indian Pharmacopeia, availability of impurity standards at low cost to enable quality control analysis as well as to support the supply & development of affordable and quality generic medicines in Sri Lanka.
  
  
• MoU between the Government of India, Sri Lanka and UAE for cooperation in development of Trincomalee as an Energy Hub: This is a trilateral MoU between India, Sri Lanka and UAE focused on development of Trincomalee into an energy hub.
  
  
• MoU between MeitY, GoI and Ministry of Digital Economy, GoSL on  Cooperation in the Field of Sharing Successful Digital Solutions Implemented at Population Scale for Digital Transformation: This MoU will enable cooperation in development & scaling up of digital transformational solutions as well as capacity building and training programmes, exchange of best practices, exchange of public officials and experts, development of pilot or demo solutions, facilitation of private sector contacts etc. The MoU will pave the way for greater institutional cooperation, cooperation in development of innovative digital transformation solutions etc.

• MoU for Implementation of HVDC Interconnection for Import/Export of Power):          Discussions on the electricity grid interconnection have been held between the two sides since at least 2006 and the conclusion of the MoU is a key development in that context. The feasibility has been confirmed by a Joint Technical Team comprising experts of both sides. Power Grid Interconnection is aimed at enabling exchange of power between India and Sri Lanka to provide lower cost power to Sri Lankan consumers. This will also open up possibilities for Sri Lanka to utilize its vast potential for clean energy for export.

Inauguration of various Projects

During the visit of the Prime Minister to Sri Lanka in April 2025, the following developmental assistance projects were inaugurated:

• Inauguration of upgraded railway track of Maho-Omanthai railway line:Under this project, India has rehabilitated and upgraded the track of the existing 128 km railway line from Maho to Omanthai, enhancing its speed potential to 100 kmph at a cost of USD 91.27 million. Executed under an Indian Line of Credit by Ircon International Limited, this modernization has improved passenger comfort and reduced travel time by nearly two hours, enabling seamless north-south rail connectivity in Sri Lanka.
  
  
• Launch of Construction of Signalling System for Maho-Anuradhapura railway line: The project involves the installation of an advanced signalling and telecommunication system along the Maho–Anuradhapura section. This advanced signalling system will enhance passenger safety while improving the frequency and efficiency of train services on the upgraded track.
  
  
• Ground Breaking ceremony of Sampur Solar power project:Initially envisaged as a thermal project in 2006, the groundbreaking ceremony of the Sampur Solar Power Project was one of the visit highlights. It will be implemented by Trincomalee Power Company Limited (TPCL), a 50:50 JV Company between NTPC Ltd. of India & CEB of Sri Lanka. The project entails a 120 MW solar project (of which first phase is 50 MW) which will bring an investment of approx. USD 100 million into Trincomalee.
  
  
• Supply of Solar Rooftop Systems for 5000 Religious Institutions across Sri Lanka:India has extended credit assistance of USD 17 million for the installation of Solar PV Rooftop Systems at 5,000 religious sites across Sri Lanka. These systems are being installed in all nine provinces and 25 districts, covering major religious sites representing Buddhism, Hinduism, Christianity, and Islam, as identified by the Government of Sri Lanka. The project aims to reduce energy costs for these institutions while supporting Sri Lanka's transition to clean energy. It will contribute 25 MW of solar capacity, generating approximately 37 million units annually. In addition to supply and installation, the project includes a five-year maintenance period to ensure long-term efficiency and sustainability.

Cyclone Ditwah

Sri Lanka witnessed one of the worst floods in the past 2 decades due to the cyclone Ditwah. India launched ‘Operation Sagar Bandhu’ to assist Sri Lanka in the aftermath of Cyclone Ditwah. India has provided more than 1123 tonnes of relief material including dry rations, tents, tarpaulins, hygiene kits, water purification kits and about 14.5 tons of medicines and surgical equipment. Around 60 tons of equipment including generators,inflatable rescue boats and 248 tons of Bailey Bridge units were given. India also deployed two columns of National Disaster Response Force comprising 80 experts and K9 units, evacuating 150 stranded persons. A fully fledged field hospital with 78 medical personnel provided medical care in Mahiyanganaya in Kandy and catered to the needs of more than 7000 patients.Fully fledged medical centres were set up from BHISM Arogya Maitri cubes in Ja-Ela and Negombo. INS Vikrant, INS Udayagiri and INS Sukanya also provided immediate relief assistance. Two Chetak helicopters from INS Vikrant andthree MI 17 helicopters actively involved in the evacuation operations, rescuing 272 survivors.

The External Affairs Minister (EAM) during his visit in December 2025 announced a comprehensive relief package of worth USD 450 million, which includes USD 350 million INR denominated LOCs and USD 100 million of grant assistance. The package covers five sectors namely railway, road & bridge connectivity; housing & water supply; health & education; agriculture & livestock; and disaster preparedness.

In the wake of the devastation caused by Cyclone Ditwah, India extended immediate support and assistance to Sri Lanka under Operation Sagar Bandhu. The assistance included rescue, evacuation, transport medical aid, setting up of temporary medical hospitals/centres, provision of food supplies/medicines and other essentials, installation of bailey bridges at various locations, repair and restoration of northern railway lines and facilitation of virtual interaction between Disaster Management Centre of Sri Lanka, ISRO, Odisha State Disaster Management Authority, NDMA and NDRF.

Technology Cooperation

• During the State Visit of Prime Minister to Sri Lanka in April 2025, a MoU on Digital Transformation was signed by both sides. The relationship between the Startup ecosystems has also expanded in the past few years. Startup India has conducted capacity building sessions for Sri Lankan startups with the facilitation by the Mission. Leading Indian entrepreneurs have been prominent invitees to the startup/AI related events in Sri Lanka. The first group of 25 Sri Lankan startups underwent training at IIT Madras Pravartak under the capacity building slots announced by Hon’ble Prime Minister during his State Visit to Sri Lanka in April 2025.
  
  
• There is strong B2B partnership between NASSCOM & SLASSCOM, especially in recent years. IIT Madras Pravartak has signed a MoU with Sri Lanka’s leading IT chamber, SLASSCOM in July 2024.The Deputy Minister of Digital Economy, ErangaWeeraratne and Dr Hans Wijayasuriya, Chief Advisor to the President on Digital Economy led a business delegation to the NASSCOM Technology & Leadership Forum in February 2025. SLASSCOM, Sri Lanka’s apex IT Chamber, hosted an official pre-event of the AI Impact Summit 2026 (AI Asia Summit 2025) in November 2025. A strong gathering of more than 400, comprising CEOs, startups, universities etc. attended the event.
  
  
• Ahigh powered delegation of Indian IT CEOs, led by Mr. Rajesh Nambiar, President NASSCOM visited Colombo from 4-6 December, 2025. They called on Hon. (Dr.) Harini Amarasuriya, Prime Minister and met Hon. Hanif Yusoof, Governor of the Western Province & President’s Special Envoy for Foreign Investment, Hon. ErangaWeeraratne, Deputy Minister of Digital Economy and Dr Hans Wijayasuriya, Chief Adviser to the President on Digital Economy. A roundtable was also organized with members of SLASSCOM.
  
  
• On 16 July 2026, Nasscom launched Disha, its flagship mentorship program for Tech SMEs, for Sri Lankan SMEs. Sri Lanka is the first country, beyond India, where this program has been launched. 48 Sri Lankan SMEs were selected for the first cohort of mentorship.
  
  
• On 16 July 2026, 6G Flagship (Oulu University, Finland), IIT Madras Global, IIT Madras Pravatak in partnership with key tech universities of Sri Lanka (Universities of Peradeniya and Moratuwa) launched the ‘Wireless Intelligence & Innovation Institute of Technology’.

Training Programmes

• India provides training opportunities to officials in Sri Lanka annually for skill development and capacity enhancement under the Indian Technical and Economic Cooperation Programme (ITEC). During FY 2025-26, around 714 officials were sent to India for training. 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.php

Capacity Building

• Pursuant to the announcement made by Prime Minister of India, Shri Narendra Modi, during his visit to Sri Lanka in April 2025, under which India committed to offering 700 customized training slots annually for Sri Lankan professionals, various batches have been sent to premier institutes in India for undergoing training programs under various domains pertaining to economic and commerce such as startups, gems and jewellery, dairy, textile, banking, electricity, PPP models and cooperatives etc.

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July 2026