Sri Lanka Has $808 Million in Untapped India Export Potential

Sri Lanka exported goods worth US$1.035 billion to India in 2025, according to the Department of Commerce. Exports using tariff preferences under the Indo Sri Lanka Free Trade Agreement were worth US$634.34 million.

The remaining US$400.97 million accounted for 38.73% of the year’s export value. The published trade series covers goods with different tariff treatment and eligibility rules, so the figure alone cannot establish why individual exporters used or did not use ISFTA preferences.

The Department of Commerce data shows preference use recovered from 55.6% in 2024 to 61.27% in 2025. Earlier levels were much higher. In 2003, 99% of Sri Lankan exports to India entered through ISFTA preferences.

An April 2026 study by the Asian Development Bank estimates that Sri Lanka has US$808 million in unrealised annual export potential in India. That amount is equal to about 78% of the value Sri Lanka already exported to the Indian market in 2025.

The ADB study places India at the top of Sri Lanka’s unrealised country level export opportunities. Its estimate uses existing supply capacity, bilateral trade patterns and Indian import demand.

Spices, jewellery, apparel and tea account for a large share of that potential. ADB estimates about US$100 million in unrealised potential for pepper and US$88 million for tea.

Tariff concessions require proof of origin

Access to an Indian tariff concession starts with the origin of the product.

Under ISFTA, goods manufactured with imported inputs generally require domestic value addition equal to at least 35% of their free on board value. The product must also satisfy a change of tariff heading at the four digit level, with sufficient processing taking place in Sri Lanka.

A lower Sri Lankan value addition threshold of 25% can apply when Indian inputs contribute another 10% under the agreement’s cumulative origin provisions.

The Department of Commerce requires exporters to obtain a Certificate of Origin when claiming ISFTA preferences. For products made with imported material, officials can request a cost statement, Customs declarations for imported inputs, import invoices and invoices covering locally sourced raw material.

The current Certificate of Origin fee is Rs. 1,500. Spices require shipment specific affidavits under the Department’s published procedure.

India also applies Customs rules known as CAROTAR to preferential trade claims. Indian importers can be asked to provide further information about the origin of a product, which requires supporting information from the exporter in Sri Lanka.

Pepper exporters face a quota measured in tonnes

Several Sri Lankan exports receive preferential treatment within annual quantity limits.

India provides duty free access for up to 2,500 tonnes of Sri Lankan pepper each year under ISFTA. Garments receive an eight million piece tariff quota. Tea receives a 50% tariff reduction for the first 15,000 tonnes, while desiccated coconut receives a 30% reduction for up to 500 tonnes.

ADB found a practical problem with the pepper quota. Indian authorities allocate it among applicants on a proportional basis, and individual allocations can become too small to fill a shipping container.

The report says Sri Lankan pepper consequently moves mainly through the South Asian Free Trade Area arrangement, where an 8% tariff applies without the same quantity limit.

Rules of origin affect tea in another way. ADB found that Sri Lankan tea blended with Indian tea can meet the cumulative value addition requirement while failing the separate change of tariff heading test.

Food shipments enter India’s inspection system

Processed food exporters must also comply with Indian food safety rules.

India’s Food Safety and Standards Authority operates the Food Import Clearance System, which connects with Indian Customs. Import applications can pass through document checks, visual inspection, sampling and laboratory testing.

Importers submit supporting material through the system. Documents can include certificates of origin, product information and other records required for food clearance.

Laboratory testing can become part of the clearance process after the goods have reached India.

India’s FSSAI identified three Sri Lankan laboratories in 2018 to issue certificates for food and beverage exports, according to ADB. The bank reported in April 2026 that the arrangement had yet to become operational.

ADB said exporters therefore continued to depend on certification arrangements involving laboratories outside Sri Lanka. It also identified Indian packaging and labelling rules as constraints affecting food and beverage exporters.

Some products require the registration of foreign manufacturing facilities. ADB cites coconut water and tea based or herbal beverages among Sri Lankan exports affected by these requirements.

Manufacturers can face another certification process

Indian product standards apply to a separate group of manufactured goods.

The Bureau of Indian Standards administers mandatory certification for products covered by Indian Quality Control Orders. A foreign manufacturer whose product falls within those rules must obtain the relevant certification before importing the product into India.

BIS says applicants under its Foreign Manufacturers Certification Scheme need manufacturing facilities, process controls and testing arrangements that comply with the relevant Indian standard.

Officials can assess the factory and establish product conformity through third party laboratory testing, testing at the manufacturing premises or a combination of both.

Foreign manufacturers must also nominate an authorised Indian representative. A separate application is required for each product standard and each manufacturing location.

Since June 1, 2026, BIS has accepted Foreign Manufacturers Certification Scheme applications through its online portal, according to the authority’s current application guidance.

Official statistics contain no SME split

Sri Lanka’s bilateral trade statistics show export value, product categories and use of tariff preferences. The published series contains no classification by company size.

That leaves a gap in measuring how small producers use the agreement. A company exporting a few consignments of spice products, packaged food or manufactured goods enters many of the same origin and certification systems that apply to larger exporters.

The compliance path varies according to the product. Food can require Indian safety clearance and testing. Products covered by Quality Control Orders can require BIS certification. An exporter claiming ISFTA treatment must establish origin under the agreement.

Actual costs for small Sri Lankan firms remain difficult to establish from public data because government statistics do not publish certification expenditure, port storage charges or clearance time by exporter size.

Sri Lanka is also digitising its side of the border

ADB has called for faster implementation of Sri Lanka’s National Single Window for trade. The 2026 Budget allocated about US$8.1 million to the project, according to the bank’s report.

The system is intended to bring trade documentation and border agencies into a common digital process. Sri Lanka has discussed the project for several years under its World Trade Organization trade facilitation commitments.

The work comes as Sri Lanka Customs handles rising trade volumes and revenue. Auditor General findings examined by Lakbima News have also identified valuation, control and revenue collection weaknesses inside the Customs system.

ADB’s April report recommends changes to ISFTA rules of origin and tariff quotas. It also calls for mutual recognition of product certification between Sri Lanka and India, including arrangements that would allow recognised conformity testing to take place before goods reach the Indian border.