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India and Sri Lanka share a strong and growing economic and trade relationship, marked by the implementation of the India-Sri Lanka Free Trade Agreement (ISFTA) in 2000. This agreement has played a significant role in expanding bilateral trade between the two nations. In addition to trade, economic engagement also extends to development partnerships, including infrastructure, transportation, housing, health, education, and industrial development.

Trade Relations:

India has consistently been one of Sri Lanka’s largest trade partners, and Sri Lanka remains an important trade partner of India within the SAARC region. In 2021, the bilateral merchandise trade between India and Sri Lanka amounted to US$ 5.45 billion, making India the largest trading partner for Sri Lanka. The bilateral trade experienced a notable increase of about 48% compared to 2020, indicating the deepening commercial ties between the two countries. Sri Lankan exports to India have seen substantial growth, with over 60% of Sri Lanka’s total exports to India utilizing the benefits of the ISFTA. On the other hand, only around 5% of India’s total exports to Sri Lanka have utilized the ISFTA provisions, highlighting the competitiveness of Indian products in the Sri Lankan market.

Foreign Direct Investment (FDI):

India has also emerged as a significant source of Foreign Direct Investment (FDI) for Sri Lanka. The total FDI from India has exceeded US$ 2.2 billion, with India being the largest contributor in 2021, amounting to US$ 142 million. Key areas of Indian investments in Sri Lanka include petroleum retail, tourism, hotels, manufacturing, real estate, telecommunications, and banking and financial services.

Tourism and Connectivity:

India is the largest source market for tourists visiting Sri Lanka. The tourism industry between the two countries has witnessed growth, particularly after the initial impact of the COVID-19 pandemic. The Air Bubble Agreement signed in April 2021 facilitated travel between India and Sri Lanka, and it further helped to restore air connectivity. In 2021, out of a total of 194,495 tourist arrivals in Sri Lanka, 56,268 tourists were from India. In 2022, India remained the largest contributor to Sri Lanka’s tourism, with 123,004 tourists visiting the country, accounting for 17.1% of total international tourist arrivals.

Connectivity between India and Sri Lanka has been strengthened with the Open Sky Agreement signed in 2016. The agreement allows Sri Lankan Airlines to operate an unlimited number of flights to six Indian airports. Sri Lankan Airlines is the largest foreign carrier in India and operated over 100 flights per week to 14 destinations in India before the pandemic. In October 2021, the Kushinagar airport was inaugurated by the Prime Minister of India, and the first international flight from Sri Lanka to Kushinagar took place, further enhancing connectivity and facilitating travel between the two countries.

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