ECONOMYNEXT – Sri Lanka should increase its trade with India with an aim to reduce risks in the ongoing geopolitical battle, a former Asian Development Bank research expert said.
Sri Lanka and India have a long history of attempting to upgrade their 1998 Free Trade Agreement (FTA) into a broader “comprehensive” deal.
While technical negotiations were completed for two major frameworks, CEPA and ETCA, neither was signed due to intense political opposition and domestic pressure within Sri Lanka.
Ganeshan Wignaraja, a former director of research at Asian Development Bank Institute said upgrading existing FTA with India is seen as a key.
“So, the short answer for Sri Lanka I think is that you know there is this risk of trade diversion,” Wignaraja said at forum held in Colombo last week.
Sri Lanka’s merchandise exports to India were 1.04 billion US dollars in 2025 and Items under Indo-Lanka FTA had generated more exports than imports consistently, data show.
Wignaraja stressed on the need for Sri Lanka to integrate more with India’s market and reap the benefits of the Indian market and called for making it a more strategic relationship compared to what exists today.
“We have to really take a strategic view of India. We have a very limited trade agreement signed; you know decades ago. But there was a discussion on an investment agreement to build in the bits. I think we better do all that rather quickly,” he said.
CEPA (Comprehensive Economic Partnership Agreement) was negotiated between 2005 and 2008 with an aim to be the natural evolution of the existing FTA, moving beyond just “goods” to include services, investments, and technology transfer.
However, professional bodies of doctors, engineers, and lawyers along with local business chambers feared that Sri Lanka’s small market would be “swamped” by Indian professionals and cheaper labor, leading to mass local unemployment.
In 2008, the Mahinda Rajapaksa government faced heavy criticism from nationalist political allies who viewed the deal as a threat to national sovereignty.
Wignaraja pointed out that even under the existing Free Trade agreement there were many constraints that prevented greater trade from happening and a lot of opportunities still remained where further liberalization was possible.
“What is it that we can do in India given the way in which that earlier trade agreement was done? Lots of exclusions such as the quota on garments, there are lots of regulations that affect our primary agriculture stuff that can go to India,” he said.
“I think it really means stuff in services where there is less regulation right. It means for instance in Gift City there are opportunities for our companies to participate in ventures with them
“Also, it means I think trying to talk with Indians much more, and getting Sri Lankan labor to work in Mumbai and in important centers in India, otherwise we risk trade diversion which is what the model shows,” Wignaraja said.