India is currently negotiating with Sri Lanka to expand their trade relationship through a comprehensive free trade agreement (FTA). This negotiation recently concluded in Colombo during the 14th round of talks, includes discussions on reducing customs duties on various goods such as cars, commercial vehicles, and machinery. Additionally, India is advocating for more streamlined visa regulations to facilitate the entry of professionals from Sri Lanka.
The ongoing negotiations are aimed at building upon the existing India-Sri Lanka Free Trade Agreement (ISFTA), which has been in effect since March 2000. The ISFTA originally focused on trade in goods, but both nations are now working towards a Comprehensive Economic Partnership Agreement (CEPA) that would encompass services, investment, and other areas of economic cooperation.
Sri Lanka has proposed the removal of the quota on apparel exports to India and is seeking duty concessions on tea and specific agricultural products. However, the forthcoming rounds of negotiations may be deferred until after Sri Lanka’s upcoming elections. Under the current ISFTA, India has granted a 50% tariff concession on up to 8 million garments from Sri Lanka annually, with a stipulation that 6 million pieces use Indian fabric. Additionally, India provides a 50% tariff reduction on up to 15 million kilograms of Sri Lankan tea each year. In contrast, Sri Lanka restricts the import of items such as automobiles and electrical goods through a negative list.
The Global Trade Research Initiative (GTRI) has noted that Sri Lanka’s request for the removal of garment quotas might be influenced by India’s recent decision to allow duty-free garment imports from Bangladesh under the South Asia Free Trade Agreement (SAFTA) for Least Developed Countries (LDCs). GTRI Founder Ajay Srivastava highlighted that such concessions could significantly impact India’s garment industry, as evidenced by a substantial increase in imports from Bangladesh.
Trade between India and Sri Lanka has seen considerable growth since the ISFTA’s implementation. India’s exports to Sri Lanka surged from USD 499.3 million in FY 2000 to USD 4.17 billion in FY 2023-24, reflecting a growth rate of 735.2%. Conversely, Sri Lankan exports to India grew from USD 44.3 million to USD 1.4 billion over the same period.
In the last fiscal year, India’s major exports to Sri Lanka included petroleum products (USD 704 million), cotton (USD 260 million), pharmaceuticals (USD 255 million), and machinery (USD 171 million). Conversely, India’s imports from Sri Lanka featured coffee (USD 103.7 million), garments (USD 55.65 million), and animal feed (USD 72.2 million). The notable decline in India’s petroleum product exports from USD 1.78 billion in FY 2023 to USD 704 million in FY 2024 contributed to a reduction in total exports to Sri Lanka.
A Sakthivel, representing the Apparel Export Promotion Council Southern Region, has expressed concerns that further concessions for Sri Lankan garments could negatively impact the domestic industry. He advocates for a cautious approach to ensure that the interests of India’s garment sector are protected.
