Trade between India and Sri Lanka has a history dating back to the pre- colonial era. However, during the colonial era, both economies were geared to producing goods for the colonial power. Even after independence, in the 1950s, the production structures of India and Sri Lanka did not undergo any significant changes. Thus there were no major transformations in the trade flow between India and Sri Lanka. The state of affairs changed gradually with liberalization of the Sri Lankan economy. The first move towards an open economy came when the Sri Lankan Rupee was unified and subjected to a managed float in 1977 with the liberalization of external trade. The process of liberalization was expedited with the intensification of privatization and deregulation as well as progressive liberalization of various sectors over the ensuing years. Reforms in the Indian economy were also initiated in the 1980s and then intensified after 1991, which encompassed nearly all spheres of economic activity. Structural reforms in both countries have been dynamic and primarily aimed at fostering competitiveness, efficiency and growth by redirecting the economy towards openness and market orientation. India’s trade-GDP ratio, an indicator of the degree of openness of an economy, increased from about 11.8 per cent during the 1980s to 17.4 per cent during the 1990s. Sri Lanka’s trade-GDP ratio, following economic liberalization in 1977, increased substantially and stabilized at around 75 per cent in the 1990s. 1.3 The international trade and financial policies of India and Sri Lanka have also been greatly complementary. 1.4 While the regional initiatives moved slowly, the most significant outcome of this process for bilateral economic relations is the India-Sri Lanka Free Trade Agreement (ISLFTA), signed in 1998

Bilateral trade has found a new momentum since the entry into force of the India - Sri Lanka Free Trade Agreement (ISLFTA) in March 2000. India-Sri Lanka bilateral trade for 2002 touched US$1 billion for the first time ever. The last five years have witnessed a trebling of bilateral trade figures. In 2003, bilateral trade touched US$ 1338 million with exports from India to Sri Lanka amounting to US$ 1093 million; while exports from Sri Lanka to India in the same period amounted to US$ 245 million. In 2004, bilateral trade touched US$ 1732 million with Indian exports amounting to US$ 1350 million and Sri Lankan exports amounting to US$ 382 million. The trade balance in favour of India has declined from 15.7 : 1 in 1998 to 3.5 : 1 in 2004, demonstrating a faster rate of growth of Sri Lankan exports as compared to India’s

India accounts for almost 15% of total Sri Lankan imports (biggest source of Sri Lankan imports) and is the 3rd largest export destination for Sri Lanka.

Encouraged by the success of the FTA, both countries decided to embark upon a more Comprehensive Economic Partnership Agreement (CEPA) in 2003. CEPA comprise of four objectives; widening and deepening of the existing FTA, establishing an agreement on trade inservices, including measures for promotion of investment in each other's countries and enhancingeconomic cooperation. This article concentrates only on the first three objectives, which is more relevant to the business community and does not cover economic cooperation aspect of CEPA. The CEPA negotiations commenced in May 2005. The agreement is expected to be concluded bythe end of the year.

Information on invesment opptunities in Sri Lanka and Indo-Sri Lanka Free Trade Agreement [ISFTA] please visit www.boi.lk.

For further deatils, Please contact the Trade Section of this Mission.

Phone: 044-24662484
Email: This e-mail address is being protected from spam bots, you need JavaScript enabled to view it