Free Trade Agreement Between India and Sri Lanka

Sri Lanka is India’s maritime neighbour. Both countries have traditionally been friends. The India-Sri Lanka relations have strengthened with the signing of the India-Sri Lanka Free Trade Agreement in March 2000. The new proposed diplomatic arrangement of the Economic and Technology Co-operation Agreement (ECTA) aims to foster a proto freedom-of-movement system and single market. Political relations between the countries stabilised with the end of the three-decade-long armed conflict between LTTE and Sri Lankan forces in May 2009.

Recent Developments

• Lieutenant Colonel Nandasena Gotabaya Rajapaksa and his brother Mahinda Rajapaksa won the recent presidential and prime ministerial elections in Sri Lanka in 2019. 
• India and Sri Lanka’s External Affairs ministers held extensive talks with an aim to establish a good rapport. 
• The India-Sri Lanka relations have been bolstered with a four-pillar initiative to boost the Sri Lankan economy. This includes:

            – Lines of credit for food, medicine, and fuel

            – Currency swap arrangement 

            – Modernisation project of the Trincomalee Oil Farms

            – Facilitating Indian investments in various sectors

• India has extended a $500 million line of credit towards Sri Lanka to help with its tumultuous financial crisis. 

Shared History and Ethnic Issues in the Indo Sri Lanka Relation 

• It is believed that Ashoka, Emperor of the Mauryan family, sent his agents to Sri Lanka. These Buddhist missionaries were responsible for introducing Buddhism to several areas.
• India’s Chola and Pallava dynasties had long invaded Sri Lanka. 
• Sri Lanka gained Independence in 1948 and was peaceful until ethnic tensions led to a divide between the majority Sinhalese and minority Tamil communities.
• The Sinhala Act was introduced in 1956, declaring Sinhala as the sole national language and compromising Tamil-speaking voters.
• There was a civil war in Sri Lanka in the 1980s. The LTTE terrorist group had become a significant threat. India helped Sri Lanka with the Indian Peace Keeping Force (IPKF), but stress between the two countries increased with mounting hostility between the IPKF and the LTTE, and India was forced to withdraw the IPKF in 1990.
• Political relations between the countries stabilised with the end of the three-decade-long armed conflict between LTTE and Sri Lankan forces in May 2009.

India-Sri Lanka Free Trade Agreement (ISFTA)  

• The India-Sri Lanka Free Trade Agreement, signed in 1998 and entered into force in 2000, provides the best framework for bilateral TRADE BETWEEN INDIA AND SRI LANKA. The Basic Premise within the ISFTA has supported asymmetries between the two economies, native socio-economic sensitivities, safeguards to shield domestic interests, and revenue implications not to impact high-revenue-generating tariff lines. 
• In 2018, the India-Sri Lanka Free Trade Agreement amounted to trade worth $4.93 billion. The same year, exports from India to Sri Lanka amounted to $4.16 billion and $767 million from Sri Lanka to India. 
• India invested over $1.2 billion in areas like telecom, commercial enterprises and IT, retail, and land, making it one of the largest investors in Sri Lanka. 

Debt Problem of Sri Lanka

• Sri Lanka’s total debt is approximately $60 billion, and it owes about $9 million in yearly repayments.
• China has been accused of engaging in debt diplomacy by taking over Hambantota port from Sri Lanka. It will lease it for 99 years, and there are worries that it is because they want to address Sri Lanka’s lack of repayment.
• As Sri Lanka defaults on loans, they risk losing physical assets to China. India is concerned about this because it could be a security threat. 

Defense/Strategic Relations

• Both navies participate in bilateral naval exercises such as SLINEX. Both armies also participate in the Mitra Shakti bilateral drills. 
• There is a dialogue mechanism between the three National Security Advisors of India, Sri Lanka, and the Maldives. It has also been translated into embarking on a naval exercise together.
• The Easter attacks of 2019 have revived the cooperative India-Sri Lanka Relations on the issue of terrorism. National Thowheed Jamath, a terror group based in Tamil Nadu, India, organised these killings in Sri Lanka. In response to the Sri Lankan attacks, India shared intelligence. Unfortunately, this information was ignored.

Issues in India-Sri Lanka Relations Concerning Fishermen

• Palk Strait Issue: The Sri Lankan government wants to ban mechanised trawlers by Indian fishermen in the Palk Strait region. However, an agreement is yet to be reached as India demands regulation of the trawlers rather than a ban.
• Fishermen Issue: The Sri Lankan navy’s killing of the Indian fishermen in January 2021 caused a major uproar. Treaties were signed in 1974 and 1976 between the countries to demarcate the International Maritime Boundary Line. However, the treaties have impacted the Indian fishermen. 
• India and Sri Lanka set up a Joint Working Group (JWG) on fisheries for the humane detention of Indian Fishermen. 
• Billions of dollars of loans for infrastructural development from China to Sri Lanka may threaten India’s relations with Sri Lanka.  

Conclusion

Cultural ties between both countries date back 2,500 years. The India-Sri Lanka relations have grown significantly due to the India-Sri Lanka Free Trade Agreement allowing duty-free TRADE BETWEEN INDIA AND SRI LANKA. India extending the line of credit to help Sri Lanka rise back from its economic crisis has also played a role in strengthening economic and diplomatic ties. Political relations between the two countries improved with the end of the conflict between the LTTE and Sri Lankan forces in 2009. However, the fishermen’s issue continues to be a problem without a concrete agreement.