India-Sri Lanka Economic Partnership Agreement (EPA) 2024: Strengthening Economic And Strategic Partnership – IMPRI Impact And Policy Research Institute

Policy Update
Elenora Tu’u

Background:

As a politics and public policy undergraduate deeply interested in foreign policy analysis, I have found the recent configuration of India-Sri Lanka relations particularly compelling. The growing geopolitical shifts in south Asia, coupled with Sri Lanka’s economic turmoil and India’s assertive regional diplomacy, have drawn my attention toward understanding how bilateral engagements evolve into structured economic partnerships.

The recent India-Sri-Lanka Economic Partnership Agreement (EPA) 2024 is not just a past continuation of 25 years relations. It represents a deliberate pivot in how the two nations envision their regional roles. A backdrop on the 2000 India-Sri Lanka Free Trade Agreement (ISFTA) laid the groundwork for trade liberalizations, but it remained limited in scope and somewhat asymmetric in outcomes. Indian exports flourished under the agreement, while Sri Lanka struggled with persistent trade deficit and limited diversification (Gagandeep & Kumar,2023).

In 2022 Sri Lanka faced one of its worst economic crises in decades, India stepped in with over USD4 billion in credit lines, fuel, food support and currency swaps, redefining its ‘Neighborhood First” strategy from a rhetorical stance to policy instrument. This unprecedented assistance triggered a calibration of political and economic ties, paving the way for more comprehensive agreement.

The EPA signed in 2024 emerged from the context not merely as a recovery mechanism for Sri Lanka, but as a test case for India’s evolving regional economic diplomacy. As someone seeking to understand how bilateral cooperation is shaped by mutual dependency, geopolitical calculations and economic leverage. This agreement offers a timely lens in which to explore the political economy of regional integration. 

Hence, this article attempts to examine the EPA not just as a policy document, but as a strategic narrative. Critics question whether it reflects a shift toward mutualism or masks deeper asymmetries beneath an ambitious framework.

Functions: EPA Expansion or Entrenchment.

The EPA despite being limited is a scope ambitious in nature.

• Digital integration- UPI Sri LankaPay integration enables real time cross border retail transactions through over 450k plus outlets.
• Trade & Service liberalization – widely cuts off tariffs,opens investment and services under CPA framework.
• Infrastructure connectivity – such as Nagapatinam-Kankesanthurai ferry service launched in October 2023, also the HVDC subsea link planned by 2030, and pipeline projects.
• Institutional reforms- MoU’s on environment, fisheries, technology and maritime security.

Argumentative view:

Its shift from ISFTA to strategic economic partnership is a progress, but does expanding the scope correct ISFTAs imbalance or cements them?

Well the shift from ISFTA to strategic economic partnership is a bold, progressive reframing of trade policy, with built in safe guards and broader objectives for both countries. It can correct past FTA  but only if backed by political will,negotiation strength  and meaningful domestic reforms – mutualism between both parties. Without this ,even a more expensive framework risks codifying the same pattern under a new name.

Performance: Evidence-Based Review 

Trade and investment: Bilateral trade rose from USD 5.54 billion in FY 2023 -2024 seeing India exporting over $4billion ,Sri lanka $1.42 billion. In January to November 2024 -2025 saw $3.67 billion.

In 2023 FDA from India totaled USD2.25 billion,and $80.6 billion in January – September 2024, this surge is seen in real estate, telecom and energy investments.

Critics argue that the expanding trade gap echoes earlier ISFTA patterns. This can be seen in Sri Lanka’s exports which remain dependent and on limited items,whereas imports flood in.

Digital & Infrastructure:  It is noteworthy to highlight UPIs success with over 450,000 plus outlets to point out as of May 2024. Additionally the resumption of ferry service in 2023, despite limited frequency and tech hiccups. Moreover the HVDC link remains in planning for 2030. It is arguable to highlight that digital gains are immediate and inclusive, whereas infrastructure lags underline in implementation challenges.

Moreover, Energy deals ,both governments of the nations in late 2024 agreed on LNG pipelines  and grid cooperation with planned solar plants in 2025. Critics observation assumes energy collaboration aligns with Sri Lanka’s acute import vulnerabilities ,yet may heighten future political costs if transparency remains weak between both countries.

Impact: A brief analytical assessment

Geopolitical: EPA buffers against Chinese encroachment ,but raises nationalist fear. Moreover, enhanced maritime ties and security align Sri Lanka closer to India’s strategic orbit.

Economic: Sri Lanka’s export limitations persist, without service liberalization, industrial diversification remains weak. Despite FDA and energy investment bringing jobs  and infrastructure, it’s also likely to see a skew towards Indian firms like Adani ,raising backlash.

Environment and social impact: UPI empowers SMEs and Tourists, ferry and energy projects promises economic inclusion. However, recurring public consultations provoke ecological and sovereignty concerns – example ; wind farms and pipelines.

Emerging Issue:

• Political Resistance : President Dissanayake campaigning to reverse Adani wind farm deals without tender reflects backlash against perceived Indian dominance.
• Asymmetrical gain: Sri Lanka’s Narrow export  base risks entrenching dependency, unless services  and standard, for example MRAs for food exports are meaningfully liberalized.
• Sovereignty tensions: Energy and maritime agreement  may inflame nationalist sentiment, framed as giving strategic leverage  to India.
• Fisheries Disputes:  Absent frameworks, recurring arrests and border tensions threaten good-will between both nations.
• Implementation gaps: Infrastructure projects undermine credibility and public trust ,for example ferry frequency and HVDC delays.

Way Forward: Suggestions

Personal Opinion:

The 2024 EPA between India-Sri Lanka presents a pivotal opportunity to move beyond ISFTAs limited win-loose dynamics toward a deeper mutually beneficial partnership .Evidence shows early successes in digital finance  and aid, but persistent imbalances and rising political tensions and dynamics mean it risks replicating structural inequalities.

To shift from dependency to genuine integration, Sri Lanka must leverage service liberalization, institutional transparency, and political consensus.  India must support capacity building, foster genuine reciprocity and prioritize community consent thereby transforming the EPA into a stabilizing force, not a flagship point in South Asia’s strategic canvas.

References:

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About the contributor:

Elenora Tu’u is an undergraduate student specializing in Politics and Public Policy at P P Savani University, Gujarat. This article is published as part of her course work with the IMPRI Impact and Policy Research Institute.

Acknowledgement:

The author sincerely thanks Ms. Aasthaba Jadeja and the IMPRI team for their valuable support.

Disclaimer:

All views expressed in the article belong solely to the author and not necessarily to the organization.

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