INDIA-SRI LANKA FTA AT 25

With the World Trade Organization projecting global merchandise trade growth to slow sharply to 1.9% in 2026, economic alliances are no longer optional—they are central to sustaining growth and resilience.

- By Ganeshan Wignaraja

The global trade slowdown reflects shipping disruptions in the Straits of Hormuz, rising protectionism, geopolitical fragmentation, and weakened business confidence. Against this backdrop, South Asia stands out as a relative bright spot. India’s trade is at record highs, supported by a new generation of comprehensive trade agreements with partners including the European Union, the UK, the UAE, Oman, and Australia. Sri Lanka, meanwhile, urgently needs to expand trade and foreign exchange earnings to consolidate recovery from its 2022 debt crisis. As the India-Sri Lanka Free Trade Agreement (ISFTA) marks its 25th anniversary, it is clear that while the agreement has delivered tangible gains, it is no longer fit for purpose in today’s global economy. Implemented in 2000, the ISFTA was South Asia’s first bilateral free trade agreement and a decisive break from the region’s earlier inward-looking trade regimes. It provided market access for goods through asymmetric tariff liberalisation, reflecting differences in economic size and industrial capacity. India liberalised tariffs on most Sri Lankan products within three years, while Sri Lanka was granted up to eight years for Indian imports, alongside extensive negative lists to protect sensitive sectors. Even today, India excludes 429 product categories, while Sri Lanka maintains over 1,100 exclusions—limits that increasingly constrain deeper integration.