India seeks duty concessions in FTA with Sri Lanka

India is negotiating for duty concessions on cars, commercial vehicles, and machinery from Sri Lanka as part of a comprehensive free trade agreement (FTA) that is currently under discussion.

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India and Sri Lanka are in talks to expand their existing Free Trade Agreement (ISFTA) into a Comprehensive Economic Partnership Agreement (CEPA). The 14th round of negotiations that concluded in Colombo, focused on rules of origin, goods, services, and technical trade barriers. 

India is seeking customs duty concessions on cars, commercial vehicles, and machinery from Sri Lanka and has requested easier visa norms for professionals. Conversely, Sri Lanka is asking for the removal of a quota on apparel exports to India and duty concessions on tea and certain agricultural products.

GTRI Founder Ajay Srivastava stated, “However agreeing to this request may not be easy for India as allowing duty free imports has led to a significant increase in garment imports from Bangladesh, growing from US$ 144.25 million in FY’2014 to US$ 739.06 million in FY’2024, a cumulative growth of 412.34 per cent.”

The ISFTA, effective since March 2000, has primarily addressed goods and significantly boosted economic ties by lowering tariffs. India currently grants a 50% tariff concession on up to 8 million garment pieces annually from Sri Lanka, provided 6 million use Indian fabric, and a similar concession on up to 15 million kg of Sri Lankan tea per year. However, Sri Lanka has restricted imports of items like automobiles and electrical goods under a negative list.

Since the ISFTA’s inception, trade between the two countries has grown markedly. India’s exports to Sri Lanka surged from US$ 499.3 million in FY 2000 to US$ 4.17 billion in FY 2024, while imports grew from US$ 44.3 million to US$ 1.4 billion. 

In FY 2024, India’s top exports to Sri Lanka included petroleum products, cotton, pharmaceuticals, and machinery, while its imports consisted mainly of coffee, garments, and animal feed. 

Notably, India’s exports to Sri Lanka fell from US$ 5.1 billion in FY 2023 to US$ 4.17 billion in FY 2024, mainly due to a decline in petroleum exports. The next negotiation round is scheduled after Sri Lanka’s upcoming elections.