India – Sri Lanka bilateral relations

By Sanath Nanayakkare

Sri Lanka cannot afford to stay in isolation and the two countries’ future is tied together even more than in the past, was the highlight of the keynote speech delivered by Santosh Jha, the High Commissioner of India to Sri Lanka, at the Innovation Island Summit held at ITC Ratnadipa on 20 February 2025.

“Like any other country, Sri Lanka cannot afford to remain in isolation, and the futures of the two nations are more interconnected than ever before, the Indian HC pointed out, addressing the key event attended by 200 participants from over 45 countries.

The following are some excerpts from his speech.

“Sri Lanka is on the cusp, potentially, of a big change. People’s aspirations and expectations have found a new expression in the two elections held in Sri Lanka. The Covid pandemic and the economic crisis in Sri Lanka has underlined the need for a transformation that many Lankans have yearned for generations to happen.”

“Sri Lanka as an Island country is particularly vulnerable to climate change. It is also blessed with rich potential for green energy, including for energy exports to the larger Asian region. And Chrome because digitization has become the new currency for low middle income countries to transcend their entrenched inefficiencies; and to outgrow them to position themselves to take full advantage of the many opportunities in an emerging geo-technological age.”

“Third, and this is my last point. Like any other country, Sri Lanka cannot afford to stay in isolation. Global connectivity and interdependence remain a norm even in this new era of re-globalization. Whether it is markets abroad, or critical imports or tourism, investment and technology, Sri Lanka needs to remain engaged with the rest of the world. This requires a better understanding of global trends and opportunities. I am sure that this conference would help build a better appreciation of the need for global engagement as a means to fulfilling the aspirations of Sri Lankans for change, growth, and prosperity.”

“As far as we in India are concerned, we are engaged with Sri Lanka on the basis of our Neighborhood First and SAGAR approach. Our relations are based on the principles of solidarity; of sharing whatever best we can offer to each other; and being a partner of first as well as last resort. Today, our relations are better than ever before and spread across a wide range of domains. Prime Minister of India Shri Narendra Modi has described connectivity, energy and digitization as the three principal pillars of our development partnership. We are also engaged in other areas such as health, education, ports and airports, agriculture, fisheries in addition to security and defence. As civilizational twins, our partnership is a necessity and not a matter of choice. Our future is tied together even more than our past was.”

The HNB Assurance Group, comprising HNB Assurance PLC (HNBA) and HNB General Insurance (HNBGI), reported a strong financial performance for 2024, with a 21% increase in Gross Written Premium (GWP), rising from Rs. 18.8 billion to Rs. 22.7 billion. The Group also achieved a consolidated Profit After Tax (PAT) of over Rs. 1.8 billion, marking a 7% growth compared to the previous year.

HNBA, the only life insurance provider in Sri Lanka with an ‘A’ rating from Fitch Ratings Lanka, and HNBGI, which also secured an ‘A’ rating, demonstrated robust financial health. The Group’s Funds Under Management grew by 24% to Rs. 55 billion, reflecting the strength of its investment strategy. Additionally, the Group honored claims exceeding Rs. 6.7 billion, with a 98% complaint resolution rate, underscoring its commitment to customer trust.

Chairman Stuart Chapman highlighted the Group’s consistent growth, with a 22% average annual increase in GWP over the past four years. He also noted the Group’s strong capital adequacy ratios, with HNBA at 379% and HNBGI at 219%, well above the regulatory requirement of 120%. The Group’s share price grew by 42% in 2024, reflecting market confidence.

HNBA CEO Lasitha Wimalaratne emphasized the company’s 7.5% market share and its target to reach 10% by 2026. HNBA’s New Business Premiums grew by 27%, and its GWP increased by 26%. Despite higher operating costs from IT upgrades, the company achieved a 3% profit growth, with total assets reaching Rs. 53 billion.

HNBGI CEO Sithumina Jayasundara highlighted the company’s resilience, with a 14% GWP growth, double the industry average. Non-motor segments surged by 24%, with Marine, Fire, and Engineering Insurance achieving exceptional growth. Despite challenges in the motor insurance sector, HNBGI secured a 6% growth. The company also achieved a 59% growth in PAT and a market share of 7%, with total assets reaching Rs. 10.2 billion.

The Joint Apparel Association Forum (JAAF) has expressed cautious optimism about Sri Lanka’s 2025 budget, commending its emphasis on export-driven growth, investment facilitation, and economic stabilization. The budget’s focus on expanding Free Trade Agreements (FTAs), modernizing trade infrastructure (e.g., National Single Window, e-cargo tracking, Customs reforms), and legislative measures like the Investment Protection Bill aligns with the apparel sector’s goals of securing market access and improving ease of doing business. JAAF also welcomed plans for a National Export Development Plan and a digital trade architecture to streamline processes, underscoring the industry’s role as Sri Lanka’s largest merchandise exporter (contributing over 40% of exports).

However, JAAF raised significant concerns about the proposed phase-out of the Simplified Value Added Tax (SVAT) scheme, urging the government to ensure a risk-based refund system is fully operational before discontinuing SVAT. The apparel sector relies on SVAT for predictable cash flow, and a premature transition to an untested mechanism could disrupt liquidity, strain exporter operations, and harm Sri Lanka’s reputation as a reliable sourcing hub. JAAF emphasized that global buyers prioritize supply chain stability, and any delays or inefficiencies in VAT refunds could deter investment and erode competitiveness.

The association reiterated its earlier recommendation for a digitally driven VAT refund process with minimal human intervention to ensure transparency and efficiency. It stressed that a poorly managed transition risks destabilizing an industry critical to Sri Lanka’s economic recovery, particularly amid ongoing macroeconomic challenges. JAAF called for close collaboration with the government to design a robust VAT framework, safeguard exporter liquidity, and maintain investor confidence. While supportive of broader reforms, the sector urged caution, emphasizing that policy continuity and careful implementation are vital to sustaining growth in Sri Lanka’s apparel industry—a cornerstone of the nation’s export economy.