In response, Sri Lanka has asked for the removal of a quota on apparel exports to India and has sought duty concessions on tea and certain agricultural commodities. The official mentioned that further negotiations will be scheduled after Sri Lanka's upcoming elections.

The two nations have already implemented an FTA in goods, and they are now working to expand the agreement to cover more goods and services. The India-Sri Lanka Free Trade Agreement (ISFTA), which took effect in March 2000, aimed to enhance economic relations by reducing tariffs on a broad range of goods. Since the original agreement focused solely on goods, both countries have been negotiating for several years to expand it into a Comprehensive Economic Partnership Agreement (CEPA) to include services, investment, and other economic areas.

Under the current FTA, India permits limited imports of garments from Sri Lanka with a 50% tariff concession for up to 8 million pieces annually, of which 6 million must use Indian fabric. Additionally, India offers a 50% tariff concession on up to 15 million kg of tea from Sri Lanka each year. The Global Trade Research Initiative (GTRI) noted that Sri Lanka may be pushing for the removal of the garment quota, especially since India allows duty-free garment imports from Bangladesh under the South Asia Free Trade Agreement (SAFTA) for Least Developed Countries (LDCs). GTRI Founder Ajay Srivastava pointed out that agreeing to this request might be challenging for India, as duty-free imports from Bangladesh have significantly increased, growing from $144.25 million in FY'2014 to $739.06 million in FY'2024, a rise of 412.34%.

Sri Lanka has placed certain items, including automobiles and electrical goods, on its negative list, restricting their import. Since the ISFTA's implementation, trade between India and Sri Lanka has grown considerably. India's exports to Sri Lanka increased from $499.3 million in FY'2000 to $4.17 billion in 2023-24, reflecting a cumulative growth of 735.2%, while imports grew from $44.3 million to $1.4 billion over the same period.

In the last fiscal year, India's major exports to Sri Lanka included petroleum products ($704 million), cotton ($260 million), pharmaceuticals ($255 million), refined sugar ($206 million), fabric ($223 million), machinery ($171 million), pepper ($90.9 million), car and motorcycle parts ($79.3 million), onions ($63.4 million), and pulses ($32 million). India's exports to Sri Lanka fell from $5.1 billion in FY'2023 to $4.17 billion in FY'2024, mainly due to a significant decrease in petroleum product exports, which dropped from $1.78 billion to $704 million.

India's main imports from Sri Lanka in FY 2024 included coffee ($103.7 million), garments ($55.65 million), animal feed ($72.2 million), areca nut ($65.5 million), light pepper ($44.4 million), rough diamonds ($26.9 million), and rubber ($26.7 million). A Sakthivel, in charge of the Apparel Export Promotion Council's Southern Region, commented that India should avoid extending additional concessions for garments to Sri Lanka, as it could adversely affect the domestic industry.