By: Cathrine Weerakkody
Sri Lanka, an island nation strategically located at the crossroads of maritime trade routes, shares a deep and enduring relationship with its closest neighbour, India. Rooted in history, culture, and economic ties, this relationship has evolved into a partnership of strategic significance. In fact, the Minister of Foreign Affairs, Vijitha Herath, recently stated that India has always stood by Sri Lanka as a close friend. The government of Prime Minister Narendra Modi, through his ‘Neighbourhood First’ policy and SAGAR (Security and Growth for All in the Region) framework, has further consolidated ties and expanded cooperation. Sri Lanka acknowledges India’s tremendous support during its economic crisis, including assistance with debt restructuring arrangements in collaboration with the IMF.
India’s lifeline during the crisis
Sri Lanka’s economic crisis in 2022 left the country grappling with severe shortages of fuel, medicine, and food. As the nation teetered on the brink of collapse, India stepped in with nearly $ 4 billion in aid, including credit lines for essential imports, currency swaps, and deferred loan repayments. This assistance not only stabilised the economy in the short term but also laid the foundation for deeper economic collaboration between the two countries.
India’s commitment did not end with emergency aid. It has since expanded its role, focusing on long-term recovery strategies, particularly in renewable energy, infrastructure development, and regional trade partnerships. These efforts underline India’s steadfast commitment to Sri Lanka’s economic stability and its broader vision of regional prosperity.
Transforming Sri Lanka’s energy sector
Energy security remains a pressing concern for Sri Lanka, and India has played a critical role in addressing this challenge. Renewable energy projects, particularly in the Northern and Eastern Provinces, have been a focal point of collaboration. Indian companies have invested in wind and solar farms, aiming to reduce Sri Lanka’s reliance on imported fuel while promoting sustainable energy solutions (Reuters, 2025a). The Indian Oil Corporation (IOC) has also expanded its footprint in Sri Lanka by upgrading fuel storage and distribution networks to bolster energy security.
However, recent developments have introduced complexities in this collaboration. Sri Lanka is now looking to renegotiate a $ 442 million power purchase agreement with India’s Adani Group. Despite this setback, India remains committed to energy cooperation, with plans to supply liquefied natural gas (LNG) to Sri Lanka and integrate the two nations’ power grids, enhancing regional energy stability (Reuters, 2025b).
Boosting tourism
Tourism, a vital pillar of Sri Lanka’s economy, has significantly benefited from India’s partnership. Indian tourists consistently represent the largest segment of international arrivals, drawn by Sri Lanka’s cultural heritage, pristine beaches, and natural beauty (Daily FT, 2025). Recognising the sector’s potential, both nations have simplified visa processes and collaborated to promote Sri Lanka as a prime travel destination for Indian tourists. These joint efforts have not only boosted visitor numbers but also provided much-needed revenue to Sri Lanka’s tourism-dependent regions. As the sector continues to recover, India’s role as a key source market for tourists highlights the mutual benefits of strengthening ties in this area.
Infrastructure development
Infrastructure development has been another cornerstone of India’s contributions to Sri Lanka’s recovery. Major projects funded by India, such as the modernisation of railway lines and the development of Kankesanthurai Harbour, have improved internal connectivity while enhancing trade routes with India (AP News, 2024). Additionally, both nations are actively working to finalise the Economic and Technology Cooperation Agreement (ETCA) to deepen economic ties and promote trade and investment.
After a five-year hiatus, negotiations resumed in Colombo in late 2023, where both sides reviewed progress and deliberated on key aspects, including trade in goods and services, customs procedures, and dispute resolution mechanisms (PIB, 2023).
Driving trade
India has consistently ranked as one of Sri Lanka’s largest trading partners, with bilateral trade exceeding $ 5 billion annually (Weerakkody, 2024). Sri Lanka’s apparel industry, a key export sector, heavily depends on Indian raw materials and machinery, which help maintain its competitiveness in global markets.
India’s role in Sri Lanka’s healthcare sector is equally significant, with the supply of affordable medicines and medical equipment meeting critical public health needs. Recent discussions have emphasised expanding trade ties through initiatives like ETCA and facilitating Indian Rupee-Sri Lankan Rupee trade settlements (Times of India, 2025).
Balancing regional dynamics
While India has been a reliable partner, China’s significant investments in Sri Lanka’s infrastructure have added complexity to the island’s foreign policy. For example, Sri Lanka recently fast-tracked a $ 3.7 billion oil refinery project with China in Hambantota, signalling Beijing’s deepening influence in the region (Reuters, 2025c). Striking a balance between these relationships will be crucial for Sri Lanka’s sovereignty and long-term economic sustainability.
Conclusion
India’s contributions to Sri Lanka’s recovery underscore the strength and depth of their bilateral relationship. From providing critical financial assistance during the economic crisis to investing in energy, trade, tourism, and infrastructure, India has proven to be an indispensable partner.
As Sri Lanka continues on its path to recovery with a new Government, deepening its partnership with India will be essential. By leveraging India’s support and fostering collaboration across key sectors, Sri Lanka can unlock new opportunities and fast-track its economic growth.
References:
- Reuters, 2025a. Sri Lanka revokes power purchase deal with Adani Group, AFP reports. [online] Available at: https://www.reuters.com/markets/deals/sri-lanka-revokes-power-purchase-deal-with-adani-group-afp-reports-2025-01-24/ [Accessed 24 Jan. 2025].
- Reuters, 2025b. Sri Lanka agrees with China’s Sinopec to fast-track $3.7 billion refinery. [online] Available at: https://www.reuters.com/world/asia-pacific/sri-lanka-china-agree-fast-track-sinopecs-37-bln-refinery-hambantota-2025-01-22/ [Accessed 24 Jan. 2025].
- Daily FT, 2025. India and Sri Lanka usher 2025 with deepened partnership: Jha. [online] Available at: https://www.ft.lk/front-page/India-and-Sri-Lanka-usher-2025-with-deepened-partnership-Jha/44-771521 [Accessed 24 Jan. 2025].
- Press Information Bureau (PIB), 2023. India and Sri Lanka re-launch negotiations of the Economic and Technology Cooperation Agreement (ETCA). [online] Available at: https://pib.gov.in/PressReleaseIframePage.aspx?PRID=1973859 [Accessed 24 Jan. 2025].
- Times of India, 2025. India, Sri Lanka eye deeper trade, investment collaboration. [online] Available at: https://timesofindia.indiatimes.com/india/india-sri-lanka-eye-deeper-trade-investment-collaboration/articleshow/116371166.cms [Accessed 24 Jan. 2025].
- Weerakkody, D., 2024. India and China key for Sri Lanka’s full recovery. Daily FT, [online] Available at: https://www.ft.lk/dinesh-weerakkody/India-and-China-key-for-Sri-Lanka-s-full-recovery/5-767754 [Accessed 24 Jan. 2025].
(The writer teaches Accounting and Finance at University of Buckingham UK.)
Source: DailyFT
