Consulate General of India

Hambantota, Sri Lanka

INDIA-SRI LANKA ECONOMIC AND TRADE ENGAGEMENT

(As updated in January 2023)

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. 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.

• India has traditionally been among Sri Lanka’s largest trade partners and Sri Lanka remains among the largest trade partners of India in the SAARC. India was Sri Lanka’s largest trading partner with an overall bilateral merchandise trade of US$ 5.45 billion in 2021. Merchandise trade between India and Sri Lanka stood at US$ 3.6 billion in 2020. The significant increase (about 48 %) in bilateral trade in 2021 as compared to 2020 reflects the deepening of the comprehensive commercial engagement between India and Sri Lanka. Sri Lankan exports to India have increased substantially since 2000 when ISLFTA 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. Interestingly, 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.

• In addition to being Sri Lanka’s largest trade partner, 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 US$ 2.2 billion. In 2021, India was the largest source of FDI which amounted to US$ 142 million. The main investments from India continued to be in the areas of petroleum retail, tourism & hotels, manufacturing, real estate, telecommunications, and banking & financial services.

• Apart from the growth in trade and investment, India has been the largest source market of tourists visiting Sri Lanka. Tourism related travel between the two countries has strengthened after the initial impact of the COVID-19 pandemic. The conclusion of the Air bubble Agreement between India and Sri Lanka in April 2021 helped facilitate movement between two countries. Out of a total of 1,94,495 tourist arrivals to Sri Lanka in 2021, 56,268 were from India (about 29%). In 2022, a total of 719,978 international tourists visited Sri Lanka. Out of which, 123,004 tourists (17.1%) were from India making it the largest contributor of tourism to Sri Lanka.

To enhance connectivity between the two nations India and Sri Lanka entered into an Open Sky Agreement in 2016 enabling Sri Lankan Airlines to operate unlimited number of flights to six Indian airports namely Delhi, Mumbai, Hyderabad, Kolkatta, Bengaluru & Chennai. Sri Lankan airlines is also the largest foreign carrier in India and it was operating over 100 flights per week to 14 destinations in India prior to the pandemic. In April 2021, both sides entered into an air travel bubble arrangement to restore air connectivity that has been impacted by the pandemic-related travel restrictions. In October 2021, the Kushinagar airport was inaugurated by the Prime Minister of India Shri Narendra Modi, and during which the inaugural international flight from Sri Lanka to the sacred city of Kushinagar took place.

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