Areas of Cooperation:

Economic Co-operation:

• Sri Lanka's exports to India too witnessed an over 21% increase assisted by increased exports of animal feed (19.26%), Arecanuts (95.96%) and textile (47.76%) during January to June 2022.
• India has become Sri Lanka's largest trading partner, with a total bilateral merchandise trade of US$5.45 billion in 2021, marking a significant rise of about 48% compared to the previous year.
• India-Sri Lanka Free Trade Agreement (ISFTA) was signed in 1998 and entered into force in March 2000. 
• India is also one of the largest contributors to Foreign Direct Investment in Sri Lanka. India has been the largest source market of tourists visiting Sri Lanka, prior to the pandemic. 
• In response to the financial challenges posed by COVID-19, the Reserve Bank of India (RBI) recently entered into an agreement with Sri Lanka to provide a $400 million currency exchange facility.

Development Cooperation:

• At the same time India emphasized on the rights and welfare of the Tamil minority.
• India provides humanitarian assistance for the reconstruction in the Northern provinces: Housing infra, rehabilitation of the Northern Railway lines.
• India has already made FDI investments exceeding US$2.2 billion in Sri Lanka, as reported by the Central Bank of Sri Lanka. In 2021, India attracted the highest amount of FDI, amounting to $142 million.

Present Crisis India’s role:

• India has emerged as Sri Lanka’s main financial backer and without Indian aid, especially with regard to fuel, the Sri Lankan economy would have ground to a halt.
• SLINEX (Sri Lanka–India Naval Exercise) Indian Army and the Sri Lankan Army, Exercise MITRA SHAKTI :  based on counter insurgency and counter terrorism operations.

Issues:

Fisherman issue:

• Both Indian and Sri Lankan fishermen have been fishing into the Palk Bay area for centuries.
• Problem emerged only after a maritime agreement was signed by India and Sri Lanka in 1974: both India and Sri Lanka agreed to stop fishing in each other’s waters.
• In 1974 and 1976 treaties were signed between the two countries to demarcate the International Maritime Boundary Line (IMBL).
• The 1976 bilateral arrangement bans international fishing and shipping. However, the agreement could not stop the fishermen from fishing in these waters, as fishermen know no boundary.

Katchatheevu Island Issue:

• It is an uninhabited off-shore island in the Palk Strait. 
• During British rule, it was administered jointly by India and Sri Lanka.
• In the early 20th century, Sri Lanka claimed territorial ownership over the islet, so in 1974 India ceded the island to Sri Lanka, through a joint agreement.
• Two years later through another accord, India further gave up its fishing rights in the region.

Current developments:

• For the northern fishermen, it is the destructive fishing method of bottom trawling that is more of a concern than marine boundaries adopted by Indian fishermen.
• Fishermen associations have been demanding the Union government to reconsider the 1974 agreement with the Sri Lankan government with regard to handing over Katchatheevu to the island nation.

Mechanisms:

• India and Sri Lanka agreed to set up a Joint Working Group (JWG) on Fisheries in 2016 between India and Sri Lanka as the mechanism to help find a permanent solution to the fishermen issue.
• The IMBL is imaginary, but it was geo-tagged and is visible to the fishermen, due to Global Positioning System (GPS) sets.

Individual steps:

• The IMBL is imaginary, but it was geo-tagged and is visible to the fishermen, due to Global Positioning System (GPS) sets.
• Sri Lanka has banned deep sea trawling 
• India has launched a project to promote deep-sea fishing launched as part of the umbrella Blue Revolution Scheme.

The China Factor: Debt trap diplomacy

• The solution lies in transition from trawling to deep-sea fishing.
• 10 % of the Sri Lanka loan is owed to China.  During the Mahinda Rajapaksha tenure (2005-2015) tilt towards China was evident.
• This era saw projects such as the Hambantota port and Colombo port City granted to the Chinese. The construction of the Hambantota port was completed and operations began in 2010.
• For the Hambantota port project, Sri Lanka borrowed $301 million from China with an interest rate of 6.3%, while the interest rates on soft loans from the World Bank and the Asian Development Bank are only 0.25–3%. Interest rates of India’s line of credit to the neighbouring countries are as low as 1%, or even less in some cases.
• During the Current government: The Hambantota port has been handed over to China on 99 year lease as part of a debt for equity swap.

Ethnic Issues:

• Composition of Population: Sinhalese people: Sinhala language, Theravada Buddhists: majority of population Tamil People:  Minority (11%): brought as labourers by the British Sri Lankan Tamils benefited from the British rule English-speaking Tamils to the civil service and other professions on a merit basis
• Discrimination against the Tamils: Tamils were disenfranchised in 1949. The 1956 Sinhala Only Act: institutionalised the discrimination
• Liberation Tigers of Tamil Eelam (LTTE) was formed in 1976: Demanded separate state in north-east Sri Lanka.  Involved in armed conflict/civil war with Sri Lankan govt from 1983-2009

India’s approach towards the Ethnic Issue:

• Indo- Sri Lanka Accord 1987: It sought to collectively address all the three contentious issues between India and Sri Lanka: strategic interests, people of Indian origin in Sri Lanka and Tamil minority rights in Sri Lanka.
• It led to India's direct involvement in the counter-insurgency operation in Sri Lanka. According to the terms of the accord, Sri Lankan forces would withdraw from the north and the Tamil rebels would disarm.

• This agreement envisaged the creation of provincial councils with autonomy enabled by the 13th amendment to the Sri Lankan constitution. It created provincial councils in Sri Lanka. 
• The accord underline India’ military assistance to Sri Lanka on which the Indian Peace Keeping Force came to be inducted in Sri Lanka.

• The situation turned into a military confrontation between the IPKF and the Liberation Tigers of Tamil Eelam (LTTE), which refused to disarm and join the political mainstream.
• Assassination of Rajiv Gandhi 1991 further changed India’s attitude towards the ethnic conflict in Sri Lanka: from active to passive role.
• During the course of the conflict, India supported the right of the Government of Sri Lanka to act against terrorist forces.
• At the same time India emphasized on the rights and welfare of the Tamil minority.
• Supported 13th amendment act. India is involved in the resettlement and rehabilitation efforts in the Northern and Eastern provinces of Sri Lanka with Tamil Population.