By The Pulseline News Desk
Sri Lanka and India have agreed to establish a joint working group to review and update the existing India-Sri Lanka Free Trade Agreement (ISFTA), signalling a renewed effort to reshape bilateral trade ties around what Colombo describes as a mutually beneficial framework.
The agreement was reached during Indian Foreign Secretary Vikram Misri’s brief visit to Colombo last Wednesday (5), where he held discussions with President Anura Kumara Dissanayake, Prime Minister Harini Amarasuriya and Foreign Affairs Minister Vijitha Herath.
Minister Herath has said both countries would shortly nominate members to the joint working group, following which discussions on the trade agreement are expected to begin.
He has said the existing arrangements would be reviewed with the objective of developing a new framework that would better serve the interests of both countries.
Revisiting a two-decade-old arrangement
The ISFTA, which came into effect in 2000, was Sri Lanka’s first bilateral free trade agreement. It was intended to gradually reduce tariffs and expand market access between the two countries.
While bilateral trade has expanded significantly since the agreement was introduced, Sri Lanka has long raised concerns over trade imbalances, market access and the difficulties faced by Sri Lankan exporters in penetrating the much larger Indian market.
India, meanwhile, remains one of Sri Lanka’s most important trading partners and a major source of imports, investment and economic assistance.
The decision to revisit the agreement therefore comes at a time when Colombo is attempting to strengthen exports, attract investment and improve its external position following the economic crisis.
For Sri Lanka, the challenge will be to secure greater access to the Indian market while ensuring that any revised agreement does not place additional pressure on vulnerable domestic industries.
Herath has also indicated that the government intends to examine Sri Lanka’s trade agreements with other countries, studying their advantages and disadvantages before considering possible renegotiations.
This suggests that the proposed India review could form part of a broader government effort to reassess Sri Lanka’s trade policy rather than being treated as an isolated bilateral exercise.
India presses for faster project implementation
Trade was not the only major issue discussed during Misri’s visit.
The Indian side also pushed for the acceleration of several Indian-supported projects in Sri Lanka, some of which have progressed slowly despite repeated discussions between the two countries.
Energy cooperation was a key area of focus, with both sides discussing ways to expedite projects including the Sri Lanka-India electricity grid interconnection, the Sampur solar power project and plans to develop Trincomalee as an energy hub.
The Trincomalee initiative is particularly significant to the broader India-Sri Lanka economic relationship, given the strategic importance of the eastern port and its potential role in regional energy infrastructure.
The two sides also agreed to work towards the earliest possible conclusion of the tender process for implementation of Sri Lanka’s Unique Digital Identity project.
Another project discussed was the rehabilitation and modernisation of Kankesanthurai Harbour in the Northern Province. The two countries are working towards concluding an MoU on the project, which is to be implemented with a $61.5 million Indian grant.
The discussions also took stock of Indian assistance in several other sectors.
Social Security Agreement
The two countries also welcomed the successful conclusion of negotiations on the India-Sri Lanka Social Security Agreement.
According to the Indian High Commission in Colombo, the agreement is expected to be signed soon after both sides complete the necessary internal procedures.
The agreement is expected to strengthen social security arrangements for citizens working across the two countries, an increasingly relevant issue given the scale of economic and people-to-people links between Sri Lanka and India.
Broader reset in economic relations?
The latest discussions point towards a broader attempt by both governments to move beyond traditional bilateral trade and aid relations towards deeper economic integration.
For Colombo, revisiting the FTA comes with both opportunities and risks.
India represents a market of more than 1.4 billion people and offers significant opportunities for Sri Lankan exporters in sectors ranging from agricultural and food products to services and manufactured goods. At the same time, the sheer size and competitiveness of the Indian economy means that greater market opening can also expose Sri Lankan producers to increased competition.
The government will therefore face the difficult task of negotiating improved market access while protecting strategic domestic sectors and ensuring that the benefits of increased bilateral trade are more evenly distributed.
The proposed joint working group could provide a formal mechanism to address these long-standing concerns.
With Sri Lanka now signalling that it will also review its other trade agreements, the India talks could become an early test of the government’s emerging approach to international trade — one that seeks to combine greater access to foreign markets with safeguards for domestic economic interests.
Leave a comment