The emerging trends in global trading patterns point to the increasing role and significance of regional economic cooperation in promoting the process of growth and development. The formation of the South-Asian Association for Regional Cooperation (SAARC) was a step in this direction. While the modalities of regional cooperation have been broadly agreed upon, a meaningful operational programme of cooperation among the nations of the SAARC region is yet to be put in place. It is in this context that the UNU World Institute for Development Economics Research took the initiative in consultation with the Governments of India and Sri Lanka, to support studies designed to come up with a clearly defined package of proposals for facilitating cooperation between India and Sri Lanka in the first instance. Following discussions with the concerned officials in India and Sri Lanka, it was decided to request the Research and Information System for the Non-Aligned and Other Developing Countries (RIS) to undertake the study. This study prepared by the RIS identifies the potential areas of Indo-Sri Lanka cooperation in the field of trade, manufactures and services. The findings reported here constitute a useful starting point for further studies and elaboration of a specific programme of bilateral and regional cooperation. The policy recommendations in the report need to be discussed at inter-governmental levels with a view to facilitate their early implementation. Given the somewhat limited ambit of the present study, further detailed work is essential to evolve a comprehensive operational programme of action to speed up the process of cooperation in the SAARC region. It is hoped that the findings reported here will provide the necessary stimulus to move forward towards the realisation of closer coordination of economic activities among the nations of the SAARC region.