Sri Lanka’s transhipment engine is fundamentally fuelled by Indian cargo, yet an asymmetrical regulatory wall restricts Indian logistics companies from fully participating in the island’s domestic market. While Colombo Port thrives as a primary maritime gateway for the Indian subcontinent, a protectionist legacy in Sri Lanka’s shipping and logistics sector creates a striking policy anomaly. Sri Lankan firms enjoy the freedom of 100% equity ownership in India’s logistics sector, but India and all other foreign nations face a strict 40% foreign equity cap for freight forwarding and shipping agencies in Sri Lanka.
This imbalance presents a structural bottleneck for an island striving to evolve from a basic transhipment stop into a comprehensive regional logistics hub. Without Indian manufacturing and consumer demand, Sri Lanka’s multi-billion-dollar port infrastructure would operate at a fraction of their capacity. Sri Lanka secures immense port revenues and economic stability because of the Indian economic output yet controls the cargo with protection for few operators discouraging investments.
Discussing the subject openly itself is not encouraged and is stopped or targeted by the oligopoly lobby of the Sri Lankan shipping and logistics industry. The Government of Sri Lanka has continuingly been misled by a few personnel who have direct access to the president’s office under any government for decades and stops legal reforms and modernisation.
The transhipment dependency and support for export growth
Sri Lanka’s maritime success is inextricably linked to its northern neighbour. The country sits strategically along the crucial East-West shipping lane, positioning it perfectly to handle the overflow and consolidation of South Asian trade. The Indian share: Approximately 70% to 75% of Colombo Port’s total transhipment volume consists of cargo originating from or destined for India. However, the location has served less over the years and due to lack of scalable choice Sri Lankan exporters and logistics companies are losing competitiveness rapidly under few oligopolistic agency houses controlling logistics technical making it more expensive for cargo movements as its strives competition
The ownership anomaly
Despite this heavy reliance on Indian trade to sustain its maritime and logistics ecosystem, Sri Lanka enforces a strict, protectionist regulatory framework. Under long-standing domestic laws, foreign ownership in shipping agencies and freight forwarding companies is restricted to a maximum of 40%, requiring a 60% local majority partner.
The paradox sharpens when looking across the Palk Strait. Under India’s liberalized foreign direct investment (FDI) guidelines, Sri Lankan companies can hold 100% equity ownership in Indian shipping, logistics, warehousing, and freight operations under the automatic route. Sri Lankan logistics giants have actively utilized this open-door policy, successfully scaling up vast networks within mainland India.
For Indian operators, however, setting up an end-to-end network in Sri Lanka remains legally impossible without diluting their equity and surrendering corporate control to local partners who rely on Indian cargo to run their business.
The risk of holding back liberalisation
Maintaining this regulatory asymmetry poses a severe long-term risk to Sri Lanka’s maritime and logistics dominance. While local oligo lobbyists push for the 40% cap since the 1970’s closed economic model the world has moved on, and all global hubs now have an open-door policy in the sector attracting billions of dollars as FDI. The Sri Lankan protection simultaneously deters global players from making deep capital commitments in value-added logistics infrastructure into Sri Lanka keeping it locked in as a regional transhipment port and affects its export competitiveness directly.
Furthermore, Colombo policy makers must remember, Indian Prime Minister Narendra Modi has been very strategic since he took office in 2015 with a maritime and logistics strategy which is aggressively developing its own maritime and logistics infrastructure with fast reforms. The expansion of direct mainliner services to Indian ports, reforms in cabotage laws, and the construction of deep-water transhipment ports and new logistics centres within India. This means that dependence on Colombo is no longer a permanent necessity for Indian cargo and no Indian company will promote Sri Lanka as a logistics centre with a cap on freight forwarding and shipping.
If Sri Lanka wishes to anchor Indian cargo to its shores permanently, it must move beyond simply acting as a transhipment pitstop. Reciprocal liberalization allowing Indian and international players the corporate security of full ownership. This is the missing link required to transform Sri Lanka into a truly competitive, world-class Indian Ocean logistics hub. Not its location.
The Indian cargo operators in Colombo request the Indian Government’s attention and request its High Commissioner Santosh Jha to take up the serious anomaly in policy with the Government of Sri Lanka.