India — Sri Lanka Relations : Economic and Cultural Interdependency
By: Ananya Kalra
Tags: Trade, International Relations, Sri Lanka, India, Economy

The relationship between India and Sri Lanka is more than 2,500 years old. Both countries have a legacy of intellectual, cultural, religious and linguistic interaction. In recent years, the relationship has been marked by close contacts at all levels. Trade and investment have grown and there is cooperation in the fields of development, education, culture and defence. Both countries share a broad understanding of major issues of international interest. In recent years, significant progress in the implementation of developmental assistance projects for Internally Displaced Persons (IDPs) and disadvantaged sections of the population in Sri Lanka has helped further cement the bonds of friendship between the two countries. India and Sri Lanka share a maritime border. India is the only neighbour of Sri Lanka, separated by the Palk Strait; both nations occupy a strategic position in South Asia and have sought to build a common security umbrella in the Indian Ocean. Both India and Sri Lanka are republics within the Commonwealth of Nations.

Political relations between the two countries have been marked by high-level exchanges of visits at regular intervals. Sri Lanka has long been a priority destination for direct investment from India. Sri Lanka is one of India’s largest trading partners in SAARC. Trade between the two countries grew particularly rapidly after the entry into force of the India-Sri Lanka Free Trade Agreement in March 2000. According to Sri Lankan Customs, bilateral trade in 2018 amounted to US $ 4.93 billion. Exports from India to Sri Lanka in 2018 were US$ 4.16billion, while exports from Sri Lanka to India are US$ 767 million. The main items of exports from Sri Lanka to India are Base Oil, Poultry feeds, Areca nuts, (waste and scrap) paper or paperboard, Pepper, Ignition Wiring Sets, Copper wire, Marble, travertine and alabaster. The main items of Imports from India to Sri Lanka are Gas oil/ Diesel, Motorcycles, Pharmaceutical Products, Portland cement, Semi-finished products of Iron, Military weapon, Fuel oil, Rice, Cement clinkers, Kerosene Type jet Fuel.

India is one of the largest investors in Sri Lanka and the Last few years have also witnessed an increasing trend of Sri Lankan investments into India. India and Sri Lanka are member nations of several regional and multilateral organizations such as the South Asian Association for Regional Cooperation (SAARC), South Asia Co-operative Environment Programme, South Asian Economic Union and BIMSTEC, working to enhance cultural and commercial ties.

Given the proximity of the territorial waters of both countries, especially in the Palk Straits and the Gulf of Mannar, incidents of straying of fishermen are common. Both countries have agreed on certain practical arrangements to deal with the issue of bona fide fishermen of either side crossing the International Maritime Boundary Line. Through these arrangements, it has been possible to deal with the issue of the detention of fishermen in a humane manner. India and Sri Lanka have agreed to set up a Joint Working Group (JWG) on Fisheries between the Ministry of Agriculture and Farmers Welfare of India and Ministry of Fisheries and Aquatic Resources Development of Sri Lanka as the mechanism to help find a permanent solution to the fishermen issue.

India is active in a number of areas of development activity in Sri Lanka. About one-sixth of the total development credit granted by India is made available to Sri Lanka. In the recent past, three lines of credit were extended to Sri Lanka: US$100 million for capital goods, consumer durables, consultancy services and food items, US$31 million for the supply of 300,000 MT of wheat and US$150 million for purchase of petroleum products. All of the lines of credit have been fully used. Another line of credit of US$100 million is now being made available for rehabilitation of the Colombo-Matara railway.

As both countries have a democratic set up there is scope for broadening and deepening the ties. A comprehensive Economic Partnership Agreement (CEPA) must be signed to improve the economic cooperation between both countries. India needs to focus more on its traditional and cultural ties to improve relations with Sri Lanka. Starting ferry services between India and Sri Lanka can improve people to people linkages. Mutual recognition of each other’s concerns and interests can improve the relationship between both countries.