India and Sri Lanka have signed a memorandum of understanding (MoU) on combining their strengths – Sri Lanka’s garment producing infrastructure and India’s quality fabric output. The aim is to jointly compete for China’s textile market as that country’s textile industry is gradually moving from production to consumption.The MoU comes after last year’s agreement allowing Sri Lanka to export up to eight million pieces of apparel to India with zero duties. The MoU will assist in effective cooperation between the Indian and Sri Lankan textile industries. It will expand business and co-operation in the development of SME in the handloom, power loom and textile sectors. The MoU will remain in force for five years and may be renewed. 
The Chinese textile sector represents 40 per cent of Sri Lanka’s annual industrial output. Textile and garment exports are worth roughly US$248 million annually, showing that the country is still largely agricultural in nature, despite its modern image. 

Labor costs, raw material costs and financing costs of China’s textiles and garment companies are rapidly increasing, and the Chinese market shows a great potential for foreign imports.