In today’s global trade environment, Free Trade Agreements (FTAs) are essential tools that enable exporters to access new markets, reduce tariff burdens, and remain competitive. Among these is the Indo-Sri Lanka Free Trade Agreement (ISFTA), a strategic trade agreement. As India’s first bilateral FTA in the South Asian region, ISFTA opens up significant export opportunities for Indian businesses looking to tap into Sri Lanka’s market with concessional or zero-duty access.
Whether you’re a seasoned exporter or an SME entering the export landscape, understanding ISFTA can empower you to take advantage of tariff concessions and streamline market access to Sri Lanka.
In this guide, Afleo-India’s trusted compliance and licensing expert-breaks down ISFTA’s structure, benefits, documentation, and practical insights exclusively for Indian exporters.
What is ISFTA?
The Indo-Sri Lanka Free Trade Agreement (ISFTA) is a bilateral trade agreement designed to promote and facilitate trade between India and Sri Lanka by offering preferential access to a wide range of products.
For Indian exporters, ISFTA offers duty-free and concessional access to the Sri Lankan market across numerous product categories.
Key Dates
- Signed on: 28th December 1998
- Came into Effect: 1st March 2000
ISFTA laid the groundwork for broader regional agreements like SAFTA and ongoing discussions under CEPA.
Core Objectives of ISFTA for Indian Exporters
- Enhance Indian export volumes to Sri Lanka through tariff reductions.
- Promote investment and trade facilitation.
- Strengthen economic ties and regional integration with a key South Asian neighbour.
Key Milestones (Indian Perspective)
| Year | What Changed for Indian Exporters? |
|---|---|
| 1998 | ISFTA signed in Colombo. |
| 2000 | Zero-duty entry for 1,351 lines of Indian origin goods on day 1. |
| 2008 | Sri Lanka completes phased tariff cuts; most engineering & pharma goods from India now land at 0 % duty. |
| 2020 | CAROTAR Rules start, tightening origin compliance for FTA claims. |
| 2025 | “Proof of Origin” amendment replaces the term Certificate of Origin in customs law, but the electronic CoO process remains unchanged. |
Smarter Shipping Begins Now – Discover Our Complete Digital Freight Platform.
ISFTA Benefits for Indian Exporters
Duty-Free Access to the Sri Lankan Market
Under ISFTA:
- India gets duty-free access to over 4,000 product lines in Sri Lanka.
- This access helps reduce or eliminate customs duties, improving price competitiveness for Indian goods in Sri Lanka.
Indian Exporters’ Competitive Edge
Indian exporters enjoy:
- Price advantages over competitors from non-FTA countries.
- Faster market penetration due to simplified tariff structures.
- Better demand for value-added products from sectors like processed food, FMCG, engineering goods, and Ayurveda.
How Indian Exporters Can Benefit
Example: Engineering Goods Exporter from Gujarat
A mid-sized engineering goods manufacturer from Gujarat began exporting to Colombo under ISFTA. With a 15% customs duty waiver, they could offer better prices than competitors from China and ASEAN. Within 18 months:
- Export volumes tripled.
- A local distributor partnership was established.
- The company expanded into southern Sri Lanka.
Key Products Indian Exporters Can Consider
The following are high-potential Indian exports to Sri Lanka under the ISFTA:
- Pharmaceuticals & medical devices
- Machinery and automotive parts
- Iron & steel products
- Plastic goods
- Processed foods and ready-to-eat meals
- Herbal and Ayurvedic products
- Textiles and cotton garments
Certificates of Origin (CoO) – Mandatory for ISFTA Benefits
To avail tariff concessions, Indian exporters must obtain a Certificate of Origin (CoO) from an authorized agency like:
- Export Inspection Council (EIC)
- Export Inspection Agencies (EIA)
To receive the preferential treatment under the ISFTA, Indian exporters must obtain a Certificate of Origin (CoO) from the designated Indian authorities. The Common Digital Platform for Issuing Certificates of Origin (CoO) of the Directorate General of Foreign Trade (DGFT), Department of Commerce, may be accessed online at https://coo.dgft.gov.in.
The product’s compliance with the ISFTA Rules of Origin, which mandate:
- Minimum 35% domestic value addition, or
- Substantial transformation of the goods.
Practical Steps for Indian Exporters
- Register your business with DGFT and obtain an Importer-Exporter Code (IEC).
- Classify your product and confirm its eligibility under ISFTA.
- Apply for the CoO via DGFT-approved agencies.
- Ensure product compliance with Sri Lankan import standards.
- Identify reliable Sri Lankan distributors through buyer-seller meets or online trade platforms.
- Use ISFTA tariff schedules to price your product competitively.
Common Challenges Indian Exporters Face
Despite ISFTA benefits, some exporters encounter:
- Non-tariff barriers like licensing or standards mismatches.
- Administrative delays in customs or CoO issuance.
- Regulatory inconsistencies across Sri Lankan ports.
Solutions:
- Stay updated with DGFT trade advisories.
- Work with customs consultants or export documentation experts like Afleo.
- Participate in export promotion events by FIEO, ITPO, and Indian Missions in Sri Lanka.
Typical Errors & How Afleo Resolves Them
| Pain Point | Impact | Afleo Fix |
|---|---|---|
| Mis-declared origin code in Box 8 of CoO | Full MFN duty charged | Pre-fill smart templates that auto-insert “B( )%”. |
| DVA mis-calculation (ex-works vs FOB) | CAROTAR post-audit demand | Forensic cost-sheet & supplier affidavits. |
| Break-bulk trans-shipment at Singapore | CoO nullified | Through-B/L wording + Afleo transit affidavit. |
| Using Indian pallets made of non-ISPM-15 wood | Quarantine hold | Lumber compliance checklist sent to vendor. |
Compliance Checklist Before You Dispatch
| Checkpoint | Why It Matters |
|---|---|
| Accurate HS code | Avoid penal interest on short-paid duty. |
| DVA workings archived 5 yrs | Customs may call for proof post-clearance. |
| Indian branding on cartons | Helps prove origin at random checks. |
| Direct Bill of Lading (IN ➜ LK) | Break-bulk at Dubai/Singapore invalidates “direct consignment” unless through-B/L clause added. |
| CAROTAR 2020 importer declaration | Your Sri-Lankan buyer files it; missing info delays clearance. |
Afleo’s export desk can vet every point before the container leaves Nhava Sheva or Tuticorin.
Recent Trends & Trade Developments (2024-2025)
Strong Export Growth for Indian Products:
- Ayurvedic & Herbal Products
- Plastic Moulded Items
- Processed Foods
- Auto Components
- Tea Packaging Machinery
Post-COVID Rebound:
Indian exports to Sri Lanka have seen a robust recovery driven by:
- Regionalization of supply chains
- Digital trade facilitation
- Low logistics cost due to geographic proximity
Future Outlook: CEPA as a Gateway to Expanded Trade
India and Sri Lanka are negotiating the Comprehensive Economic Partnership Agreement (CEPA)-which will expand trade beyond goods to include:
- Services and investment
- Mutual recognition of standards
- Technology transfers
Indian exporters can look forward to deeper market access and fewer regulatory hurdles once CEPA is finalized.
2025 Opportunity Map for Indian Exporters
- Green Construction Inputs – Sri Lanka’s reconstruction push after April 2024 cyclone damage means high demand for Indian steel, cement clinker, solar panels.
- Processed Food & Dairy Alternatives – New zero-duty window on plant-based protein (HS 2106) from Jan 2025.
- Electric Two-Wheelers – Lankan Budget 2025 offers 10 % rebate to importers that source e-bikes from FTA partners; ISFTA duty is already 0 %.
- Digital Services Add-Ons – Although ISFTA covers goods, bundling hardware with maintenance SaaS (billed out of India) is VAT-exempt under Sri Lankan ICT concession scheme.