India and Sri Lanka Discuss Expanding Trade Agreement: Key Issues and Negotiations

India is currently in talks with Sri Lanka seeking customs duty concessions on various goods such as cars, commercial vehicles, and machinery under a comprehensive free trade agreement (FTA). An official confirmed that India also wants easier visa norms to facilitate the entry of professionals from Sri Lanka. The 14th round of talks between senior officials of both countries recently concluded in Colombo.

Discussions in the talks covered rules of origin, goods, services, and technical trade barriers. In return, Sri Lanka is seeking the removal of a quota on apparel exports to India and is also asking for duty concessions on tea and certain agricultural commodities. However, due to the Sri Lankan elections, the next round of negotiations between the two countries will be held after the elections.

The existing India-Sri Lanka Free Trade Agreement (ISFTA) came into force in March 2000, which reduced tariffs on a wide range of goods, focusing solely on goods. The two countries have been negotiating for several years to expand it into a Comprehensive Economic Partnership Agreement (CEPA), which would include services, investment, and other areas of economic cooperation.

Under the current FTA, India allowed limited imports of garments from Sri Lanka at a 50 percent tariff concession for up to 8 million pieces annually, with specific requirements. India also offered a 50 percent tariff concession on up to 15 million kg of tea from Sri Lanka each year.

Trade think tank Global Trade Research Initiative (GTRI) mentioned that Sri Lanka may be seeking the removal of the quota on garments, especially considering India’s duty-free imports of garments from Bangladesh under the South Asia Free Trade Agreement (SAFTA) for Least Developed Countries (LDCs). Since the implementation of the ISFTA, trade between the two countries has experienced substantial growth.

India’s exports to Sri Lanka increased from USD 44.3 million in FY’2000 to USD 4.17 billion in 2023-24, while imports from Sri Lanka grew from USD 44.3 million to USD 1.4 billion. However, India’s exports to Sri Lanka fell from USD 5.1 billion in FY’2023 to USD 4.17 billion in FY’2024 due to reduced petroleum product exports.

Notably, India’s major imports from Sri Lanka in FY 2024 included coffee, garments, animal feed, areca nut, light pepper, rough diamonds, and rubber. A representative from the Apparel Export Promotion Council advised against extending concessions for garments to Sri Lanka, expressing concerns about the impact on the domestic industry.