How Sri Lanka has emerged as India's strategic anchor in a turbulent subcontinent

Prime Minister Narendra Modi’s recent visit to Sri Lanka resulted in the signing of seven memorandums of understanding (MoUs) with Sri Lankan President Anura Kumara Dissanayake (AKD). This visit underscored India’s commitment to its “Neighbourhood First Policy” (NFP), which aligns with the ‘MAHASAGAR’ (Mutual and Holistic Advancement for Security and Growth Across Regions) vision aimed at fostering regional security and growth.

Last year, Indian External Affairs Minister S Jaishankar met with the Sri Lankan President to discuss bilateral cooperation in various sectors, including power, energy, connectivity, port infrastructure, aviation, etc.

India is Sri Lanka’s closest neighbour, and the relationship between the two countries is more than 2,500 years old, sharing a strong civilisational and historical connection. Sri Lanka has a central place in India’s regional policies.

The bilateral relations are mature and diversified, encompassing all areas of contemporary relevance. The shared cultural and social heritage of the two countries and the extensive people-to-people interaction of their citizens provide the foundation to build a multi-faceted partnership.

PM Modi’s Visit Highlights

PM Modi was awarded the “Sri Lanka Mitra Vibhushana”, the country’s highest civilian honour. The award includes a citation and a silver medal adorned with Navarathna (nine Sri Lankan gems). The medal features a Pun Kalasa (symbol of prosperity), Sun and Moon (eternity), and a Dharma Chakra, reflecting the shared Buddhist heritage.

India and Sri Lanka signed a landmark 5-year defence MoU, an umbrella agreement aimed at structuring joint exercises, maritime surveillance, and defence industry collaboration. President Dissanayake reaffirmed Sri Lanka’s commitment to ensuring that its territory will not be used against India’s interests. The two sides agreed on the India-Sri Lanka grid interconnection for electricity trade.

A tripartite MoU involving the United Arab Emirates was signed to develop Trincomalee port city as an energy hub, including the construction of a multi-product energy pipeline. India also converted over $100 million in loans into grants and reduced interest rates on other loans to support Sri Lanka’s debt restructuring.

PM Modi launched key projects in Sri Lanka, including the refurbished Maho-Omanthai railway line, supported by Indian assistance of $91.27 million; the Sampur Solar Power Project; and a solar rooftop initiative for 5,000 religious sites in Sri Lanka ($17 million assistance) that would generate 25 MW of green energy. The PM announced that relics of Lord Buddha found in Gujarat’s Aravali would be sent to Sri Lanka for exposition during the Vesak Day celebrations in May 2025.

Neighbourhood First Policy (NFP)

The Indian subcontinent is a single geopolitical unit with strong economic complementarities among its constituent parts. It is a shared cultural space with deep and abiding affinities among the people of the countries located in the subcontinent because of a long and shared history. It includes the countries of Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan, and Sri Lanka.

Prioritising its neighbours has been a central tenet of India’s foreign policy. Effectively managing its immediate region in the subcontinent is crucial for India to expand its influence in Asia and globally. Frequent political or economic challenges in neighbouring countries often divert India’s focus back to the subcontinent, limiting its capacity to address broader regional and global issues. With recent shifts in global and internal political and economic landscapes among neighbouring countries, India has a renewed opportunity to invigorate its NFP, which it should seize wholeheartedly.

The NFP has been a cardinal component of India’s foreign policy. Unless India manages its periphery well in the subcontinent, its pursuit of a more significant role in the Asian region and the world will remain suboptimal.

Moreover, adversaries like China seek to keep India tethered in the subcontinent. If India aims to counter China’s manoeuvrability in the region, the warmth and closeness would have to be extended to the entire immediate and extended neighbourhood.

With the change of regime in Bangladesh, Muhammad Yunus, the Chief Adviser of the interim government, has been openly wooing China and at times making anti-India statements. The President of Maldives, Mohamed Muizzu, also tried playing the anti-India (pro-China) card initially.

Sri Lanka’s often failing economy has pushed it to seek support from both China and India and sometimes play the two against each other. The recent political instability in Pakistan, the economic crisis in Sri Lanka, the regime change in Bangladesh, the ‘India Out’ campaign in Maldives and China’s growing footprint in Nepal are other major challenges for India.

India-Sri Lanka Economic Relations

India is one of Sri Lanka’s top trade partners, and vice versa, within the South Asian Association for Regional Cooperation (SAARC). The 1998 Free Trade Agreement (FTA) boosted bilateral trade to $5.5 billion in 2023–24, with India’s exports at $4.1 billion and Sri Lanka’s at $1.4 billion.

India is the leading source of tourists to Sri Lanka, with around 4.16 lakh in 2024, which was nearly 20 per cent of the total 2.05 million. Sri Lanka’s adoption of India’s UPI and use of the rupee for trade settlement have boosted financial connectivity. India has extended over $7 billion in credit and $780 million in grants to Sri Lanka.

During Sri Lanka’s 2022 crisis, India had provided nearly $4 billion in aid. During the COVID-19 pandemic, India sent 500,000 vaccines to Sri Lanka under grant assistance. India also sent 150 tonnes of oxygen to Sri Lanka to help combat the third wave of the pandemic. India has accorded financial assistance to 100 new students each year from the University of Jaffna and Eastern University.

India is a key Foreign Direct Investment (FDI) contributor to Sri Lanka, with cumulative investments of $2.25 billion till 2023. The FDI from India for the period January-September 2024 was $80.55 million.

In the current FY 2024-25, for the period April-November, the bilateral trade was $3.67 billion, with India’s exports to Sri Lanka being $2.84 billion. India has also resumed negotiations with Sri Lanka for the finalisation of the Economic and Technology Cooperation Agreement (ETCA) covering both goods and services.

The main investments from India are in the areas of energy, hospitality, real estate, manufacturing, telecommunication, banking and financial services. In order to develop Kankesanthurai port, India has extended a grant of $61.5 million to Sri Lanka, and an MoU to formalise the arrangement is under negotiation.

Defence and Security Cooperation

High-level defence engagements have been regular through visits of service chiefs from both sides. In addition, an annual defence dialogue is held between the defence secretaries every year to review and add momentum to bilateral defence cooperation. There were continuous naval interactions and ship/submarine visits from India to Sri Lanka.

Key bilateral exercises include the maritime exercise “SLINEX” and the army exercise “MITRA SHAKTI”, which are held alternately in both countries. India acts as a ‘first responder’ for Sri Lanka in the field of Humanitarian Assistance and Disaster Relief (HADR). The two countries now have a framework agreement on defence cooperation. This supports joint exercises, naval interactions, and enhanced maritime surveillance to counter China’s military presence, particularly at Hambantota port.

Additionally, India has committed to providing defence platforms to strengthen Sri Lanka’s military capabilities. In commemoration of the 77th Independence Day of India and the strengthening of India-Sri Lanka relations, the Indian Navy Dornier aircraft was handed over today to the Sri Lanka Air Force in 2023.

India has funded and created a Maritime Rescue Coordination Centre (MRCC) for the Sri Lankan Navy that was commissioned in June 2024. Further, India offers around 1200 training vacancies for Sri Lankan Armed Forces annually at all levels, from training of soldiers/airmen/sailors to the National Defence College.

Security cooperation on counterterrorism and other related areas is also an important aspect of our bilateral relationship. The Colombo Security Conclave has emerged as a key platform in recent times to address such issues at a regional level.

Cultural and Community Ties

Deep-rooted Buddhist and Hindu ties, including the sacred Jaya Sri Maha Bodhi tree in Sri Lanka, which is believed to have grown from a branch of the Bodhi Tree in Gaya, Bihar, under which Buddha attained enlightenment. It was brought by Sanghamitta, daughter of Emperor Ashoka. This highlights strong cultural bonds. India supports temple restoration and religious tourism under its cultural diplomacy efforts.

Sri Lanka hosts around 10,000 People of Indian Origin (PIOs) and about 1.6 million Indian-Origin Tamils (IOTs). India has been carrying out people-oriented development projects across the 25 districts of Sri Lanka and cutting across several sectors, including infrastructure, housing, health, livelihood and rehabilitation, education, agriculture, renewable energy, railways, industrial development, etc.

A project for solar electrification of Buddhist places of worship and a special grant for projects in the Eastern Province and a hybrid renewable energy project in 3 islands off Jaffna are in place.

India has established an Indian Gallery at the International Buddhist Museum in Kandy and restored the Thirukeeteswaram Temple in Mannar. India has also published the Pali grammar book ‘Namamala’ and the Sinhala translation of Jataka Tales in early 2025.

The Centre for Contemporary Indian Studies (CCIS) has been set up at Colombo University. A long-term ICCR chair for Hindi has been set up at Kelaniya and Sabaragamuwa University.

Over 2000 teachers in plantation schools in Science, Technology, Engineering, and Mathematics (STEM) subjects under multi-sectoral grant assistance were also trained from August to October 2024. Indian institutes under the ‘Study in India’ programme provide technical expertise across a diverse range of courses.

Why Good Ties are Important to Both

India has shown strong commitment to Sri Lanka’s economic recovery, providing unprecedented economic aid and being the first creditor to assure support for the IMF bailout programme. India is Sri Lanka’s largest trade partner, leading FDI source, and top tourist contributor.

India has extended grants and concessional loans for key infrastructure and digital projects such as housing, Kankesanthurai Port, and Digital ID, among others.

Similarly, Sri Lanka is important to India, as it is located near key Indian Ocean trade routes, and Sri Lanka is essential to India’s maritime security and energy lifelines.

Sri Lanka acts as a buffer in countering Chinese strategic encirclement through the Belt and Road Initiative (BRI) and port developments (Hambantota). As an active member of regional platforms like BIMSTEC and the Indian Ocean Rim Association, Sri Lanka plays a key role in regional cooperation. Sri Lanka has supported India’s candidature for a non-permanent seat at the UN Security Council (2028–29).

Challenges in India-Sri Lanka Relations

China’s BRI projects, like the 99-year lease of Hambantota Port in Sri Lanka, raise Indian concerns over strategic encirclement. Frequent visits by Chinese surveillance ships near Indian waters highlight geopolitical sensitivities.

The repeat arrests of Indian fishermen near Katchatheevu Island by the Sri Lankan Navy over alleged maritime boundary violations continue to remain a pressing issue. Interestingly, Katchatheevu Island was ceded by India to Sri Lanka under the 1974 Indo-Sri Lankan agreement, which barred fishing in each other’s Exclusive Economic Zones. However, while the pact permitted limited access for Indian fishermen, differing interpretations of its terms have led to persistent disputes.

The 13th Amendment to the Constitution of Sri Lanka was enacted in 1987 following the Indo-Sri Lanka Accord. It was aimed at devolving powers to provincial councils, particularly in Tamil-majority areas. However, Sri Lanka’s failure to fully implement this amendment, especially in the Tamil-majority Northern and Eastern Provinces, is seen as a disregard for Tamil political rights.

Sinhala nationalists oppose devolution, while Tamil groups demand broader autonomy, placing India in a diplomatic bind.

Clearly, domestic political narratives significantly influence foreign policy in both India and Sri Lanka. In India, Tamil Nadu plays a crucial role in shaping policy toward Sri Lanka. In Sri Lanka, certain political factions, particularly leftist parties, have historically exploited anti-India sentiments.

Way Ahead to Enhance India-Sri Lanka Relations

Sri Lanka’s growing IT sector offers an opportunity for India to invest in and integrate its services with Sri Lanka’s digital economy. India’s expertise in solar and wind energy can help Sri Lanka reduce its dependence on fossil fuels and develop sustainable energy infrastructure.

A swift implementation of the Economic and Technology Cooperation Agreement (ETCA) can reduce trade barriers and boost India-Sri Lanka bilateral trade. Enhanced patrolling along the International Maritime Boundary Line (IMBL) and a dedicated Joint Working Group can help curb illegal fishing and ensure continuous dialogue.

Proximity is a significant asset, enabling the low-cost and timely flow of goods, services, and people across borders. The asymmetry of economic and technological power which India enjoys is an asset in transforming the economy of the entire sub-region.

India is the biggest transit country for the subcontinent and has land borders with Pakistan, Nepal, Bhutan and Bangladesh and maritime borders with Sri Lanka and the Maldives. India has also extended a helping hand to Sri Lanka and Nepal, facing severe economic setbacks.

Over the past few years, China’s actions and policies all through South Asia and also in India’s maritime neighbourhood, including in the Indian Ocean island countries, have raised the need to give deep consideration to India’s approach to its neighbours. Being the largest and most powerful country in the subcontinent, India’s security perimeter goes beyond its national borders.

A strong Indian foreign and security policy must ascertain that its neighbourhood remains peaceful, stable, and benign, and no hostile presence can entrench itself anywhere in the subcontinent and threaten India’s security. The challenge for Indian foreign policy lies in creating effective and enduring incentives for our neighbours to remain sensitive to India’s security interests and use India’s more powerful economy to become an engine of growth for them.

A better way would be to intervene less in the internal political affairs of its neighbours and subtly make it known that what India will never accept is the physical presence of a hostile foreign power in a manner that would adversely impact its security, especially in a case of open borders.

India must promote cross-border connectivity: To bring into use its proximity with the other countries, India requires efficient cross-border connectivity both in terms of infrastructure and procedures to allow the smooth and seamless transit of goods and people. Creating strong interdependencies with our neighbours will support.

PM Modi was the first foreign leader to be received by AK Dissanayake after he became president. It is noteworthy that the president made his first overseas visit to India, signalling the Sri Lankan government’s intent to prioritise its relationship with New Delhi.

In 2023, India’s foreign minister S Jaishankar declared India would persist in providing support to Sri Lanka across all conceivable domains. India is active in a number of areas of development activity in Sri Lanka. About one-sixth of the total development credit granted by India is made available to Sri Lanka.

Regular high-level ministerial visits continue to sustain the momentum of strong bilateral relationships. During Indian EAM’s October 2024 visit, he conveyed that payments for seven completed projects worth $20 million could be converted into a grant and also the decision to gift 22 diesel locomotives to the Sri Lankan Railways.

In the recent past, three lines of credit were extended to Sri Lanka: $100 million for capital goods, consumer durables, consultancy services and food items; $31 million for the supply of 300,000 MT of wheat; and $150 million for the purchase of petroleum products.

All of the lines of credit have been fully used. Another line of credit of $100 million is now being made available for rehabilitation of the Colombo-Matara railway.

India’s National Thermal Power Corporation (NTPC) is also scheduled to build a 500 MW thermal power plant in Sampur, which would take the Indo-Sri Lankan relationship to a new level.

Ferry services between Colombo and Tuticorin and between Talaimannar and Rameshwaram and a cruise/ferry service between Colombo and Kochi in Kerala could be good initiatives.

Other notable connectivity initiatives under discussion include the Economic Land Corridor, for developing land access to Trincomalee and Colombo; a multi-product pipeline connecting India and Sri Lanka; and the power grid interconnection.

The deep cultural links between the two countries need to be harnessed. In a bid to foster and safeguard the Buddhist connections between India and Sri Lanka, PM Modi had unveiled a grant assistance of $15 million in September 2020. Modi’s concluding the recent visit to the sacred Mahabodhi Temple in Anuradhapura and his interaction with the Mahanayake’s (senior Buddhist clergy) symbolised India’s enduring historical and spiritual ties with Sri Lanka.

The writer is former Director General, Centre for Air Power Studies. Views expressed in the above piece are personal and solely those of the author. They do not necessarily reflect Firstpost’s views.