Prime Minister Narendra Modi has asked the Sri Lankan government to help Indian businesses seeking to invest in Sri Lanka , in what analysts said was a clear signal of New Delhi's intention to deepen once-neglected ties with the island nation and take advantage of its ongoing review of close economic links with China.
Sri Lankan Prime Minister Ranil Wickremesinghe concluded a three-day visit to India yesterday with both sides agreeing to negotiate a trade and investment pact by the end of the year, while looking at greater military and security cooperation.
"Mr Modi has understood the China factor and that accelerates a sense of urgency in New Delhi to take on any kind of opportunity (in Sri Lanka). Modi is making an effort to do things in Sri Lanka, particularly in infrastructure, and showing a lot more interest compared with the previous government," said Dr Rajeswari Rajagopalan, senior fellow at the Observer Research Foundation.
"In order for India to have influence in the country, it needs to see what they need and accordingly respond to the situation."
India and Sri Lanka traditionally have had close relations, but ties have been strained particularly over the last five years during the second term of former president Mahinda Rajapaksa, who welcomed and encouraged Chinese investment in building ports, roads and power stations.
Separately, India had lodged protests against Chinese submarines docking in Colombo last year, due to security concerns.
Ties have been on the mend under Sri Lanka's new government, led by President Maithripala Sirisena, who came to power in January.
Sri Lanka has expressed its intention to balance its ties with India and China, while reviewing the previous government's tilt towards Beijing, said analysts.
A number of Chinese-backed projects are under review, including the US$1.4 billion (S$2 billion) Port City project to develop apartments, malls and sports areas on reclaimed land near Colombo.
While India is not expected to be able to match Chinese investments, Mr Modi - who in March became the first Indian prime minister to visit Sri Lanka in 28 years - still called it "a historic year for India-Sri Lanka relations".
"We both want deeper economic engagement. We would like to see our trade grow and become more balanced for Sri Lanka," said Mr Modi, adding that the two countries had "closely aligned security interests".
Analysts said the Sirisena government, which has promised to create one million jobs in five years, also sees the benefit of deepening engagement with one of Asia's fastest-growing economies.
"The Sri Lankan government is in a financial bind. They need investment and India is the other country which can invest money in Sri Lanka. Ties are good now," said strategic security and intelligence analyst and retired colonel R. Hariharan.
But irritants remain, like the problem of fishermen straying into each other's territories and the issue of greater political autonomy sought by Tamils in the north and east of Sri Lanka. India has a large Tamil population sensitive to the way Tamils are treated in Sri Lanka.
"The main challenge is whether Ranil Wickremesinghe can deliver on the Tamil issue, because there will be massive pressure on him. If he cannot deliver, it will be an issue for India too, because of the domestic constituency," said senior journalist Seema Guha.