In the field of industrial policy, the Sri Lankan Government has rationalised many of the approval procedures with a view to promote the international competitiveness of domestic industries. Policy measures introduced during the last few years included the provision of enhanced incentives and facilities to foreign and domestic private investors. Exchange controls have been relaxed to a large extent and restrictions with respect to trade and payments have been considerably reduced. The Sri Lanka Government has established a Board of Investment (BOI) which functions a One - stop Investment Promotion Centre. The BOI is the approving authority on foreign investment. The approval in most instances are automatic (within 4 days) except in the case of 15 sectors where foreign investment of over 40 per cent is subject to evaluation and in those cases where fiscal and financial incentives are being provided. 

However, in these latter types of investment, the maximum time limit for approval is 2 to 4 weeks. The BOI provides a wide range of incentives like preferential rates of corporate tax for the export sector and hotel sector, duty free imports of project capital goods and raw materials, free transferability of shares, and absence of restrictions on repatriation of profits and dividends. Investment protection is guaranteed through agreement with BOI apart from multilateral conventions. Foreign investment is regulated only in a select group of activities such as financial services, coastal shipping, air transport, power generation and distribution.

The BOI has targeted certain sectors for foreign investment. These include 

• electronics and information technology 

• agro-processing and food processing

• footwear, light engineering and metal working

• shifted toys, industrial infrastructure (roads highways, water supply and standard factories)

• garment accessories 

• tourism infrastructure (hotels, golf courses, secretion facilities)

•  extraction and value addition of minerals. 

Sri Lanka has established three Export Processing Zones at Katunayake, Biyagama and Koggala. There were 280 industrial units in operation in the EPZs at the end of 1993, out of which 82 units were engaged in the manufacture of textiles, wearing apparel and leather products. These unit also accounted for about 57 per cent of the total employment in the EPZs.

The other major manufacturing activities carried out in the EPZs include

• wood and wood products

• chemicals, rubber and plastic products

• food beverages 

• tobacco products as well as non-metallic mineral products. During 1993, the BOI has approved some proposals for new manufacturing

• motor vehicle accessories

• telecom equipment

• solar power generators

• coir briquettes 

• electrical appliances 

• computer software.

Sri Lanka has only a limited domestic market because of its small population of 17.6 million. The emphasis has, therefore, been mainly on export oriented industrial ventures.

However, the Sri Lankan economy also provides substantial scope for the establishment of joint ventures to meet the domestic demand as well as the export markets. There are profitable opportunities for setting up industrial units for the manufacture of tyres and tubes tyre retreading, moulded and extended rubber products, solid tyres, rubber belts, rubber gloves and similar products. Furthermore, India and Sri Lanka being the two rubber producing countries in the region can have close cooperation in research and development in rubber plantation, especially in view of low yield rates in Sri Lanka. Sri Lanka is keenly interested in expanding sugarcane plantations and setting up sugar mills. Pakistan and India are two major producers of sugar and sugarcane in the region. Both these countries can cooperate with Sri Lanka in the development of sugarcane plantations and setting up of sugar mills. The garment industry in Sri Lanka has emerged as a major source of foreign exchange earnings and also employment. The garment industry is, however, heavily dependent on imports of yarn, fabric and other materials. Both India and Pakistan can expand their shares in Sri Lankan imports of textile products for both domestic consumption and to meet the requirement of export oriented garment units. In addition, both India and Pakistan can also establish manufacturing units in the EPZS and export from Sri Lanka. There is also a large potential for establishing joint ventures or solely owned companies in other areas like medicines, pharmaceutical products, personal cares products and consumer durable goods such as electrical household appliances, electronic consumer goods as well as rubber based industries. In addition, joint ventures could also be established in infrastructure areas like coastal shipping, power generation, port development and management.