"India is emerging as a leading economy in the world and Sri Lanka has to be close to India because it would stimulate Sri Lanka’s own economy," he told The Island Financial Review.

"The Free Trade Agreement between the two countries was signed in March 2000 and since then, trade has improved, investments have grown along with professional services between the two countries, despite the fact that the FTA covers only trade in goods," he said further.

Dr. Kelegama said the Indo-Lanka Comprehensive Economic Partnership Agreement (ILCEPA) was negotiated with proper checks and balances taking into account some of the difficulties encountered with the FTA.

"The ILCEPA was also going to open up trade in investments and services between the two countries with the proper checks and balances and although the current FTA does not cover these areas, they still have grown," he said.

Dr. Kelegam said that Indian investments in Sri Lanka had grown significantly since the FTA was signed in 2000.

"Between 1978 and 1995, investments from India accounted to 1.2 percent of total foreign direct investments. In 1998, Indian investments in Sri Lanka amounted to US$ 1.4 million. But, by 2008, investments increased to US$ 125.9 million. This was 14 percent of total foreign direct investments. Today India is the second largest investor in Sri Lanka after Malaysia," he said.

About 70 percent of Colombo Port’s income is due to transshipments to and from India while 40 percent of Sri Lankan Airline’s revenue came from the Indian market. Dr. Kelegama pointed out that several Sri Lankan IT companies had provided solutions to Indian companies.

Trade in goods has increased under the FTA. The average annual exports to India between 1995 and 1999 amounted to US$ 39 million. Imports from India amounted to US$ 509 million.

In 2008, eight years after the FTA was signed, exports to India reached US$ 418.3 million. Imports amounted to US$ 3,443 million.

"The FTA has its problems, but ILCEPA was meant to address those issues and deepen the economic ties between the two countries," he said.