A fortnight ago Indian tea dealers played tennis, squash and cricket with members of the Colombo Tea Traders Association. They lost most of the games but assured their hosts that New Delhi would grant preferential treatment to Sri Lanka's main export commodity, tea. However, by last Tuesday India was backtracking on promised tariff exemptions for Sri Lankan tea under what was to be a landmark free-trade agreement aimed at reducing the huge trade gap favouring India. "We are shocked that India has gone back on their promise," a member of the Sri Lankan tea association said.

"We were told by our Indian colleagues that there was no way that India would go back on the promise, despite some opposition by some political groups, because in the next two years India needs to import a lot of tea anyway." India's topenvoy here, Shivshankar Menon, had vowed that Sri Lankan tea and rubber would not be included in New Delhi's "negative list," allowing the two commodities easier access to the vast Indian market. The December 28 agreement signed between Sri Lankan President Chandrika Kumaratunga and Indian Prime Minister Atal Behari Vajpayee was to go into effect on March 1. But New Delhi's last-minute change of heart has virtually scuttled the trade pact.

However, embarrassed Indian diplomats here are putting a brave face on events. There could be fresh trade talks "in a couple of weeks," one told Indian journalists in Colombo. The trade pact had envisaged India eliminating some of the import tariffs on Sri Lankan products within three years from last Monday while Sri Lanka would take eight years to reciprocate. But Sri Lanka's import tariffs, which are already lower than those of India's, are to be brought down across the board by next year, making some of the concessions to India redundant. Sri Lankan newspapers haveslammed the trade pact as a sell-out to India and warned that it could further widen the trade gap.

New Delhi made it clear that Sri Lankan garments which compete in Western markets would not be allowed into India, in a bid to protect domestic Indian industry. But the newspapers derived some comfort from the expected tea deal, only to see their hopes dashed.

In New Delhi, a top executive with India's state-run Tea Board said the U-turn was a result of massive political pressure put on Vajpayee's coalition government by the three main tea-growing states. The Indian Tea Association on Wednesday hailed the blocking of Sri Lankan tea as a "welcome decision." "We have been urging the government not to allow duty-free import of tea from Sri Lanka as it would adversely affect the Indian tea industry," association chief P K Bhattacharya said. Sri Lanka had been banking on exporting five to 10 million kilograms (11 to 22 million pounds) of tea to India straight away if it was granted zero-tariff status instead ofattracting the current 19.5 per cent duty.

The tea industry in Sri Lanka, which lacks a major industrial base, has been looking for just such an opportunity. Financial problems faced by traditional buyers such as Russia have driven prices at the Colombo tea sale, the world's largest weekly tea auction, down by 46 per cent in a year. The lower prices have hurt Sri Lanka's overall exports, which were running on the back of high tea prices in the first half of last year. But the tea party is now clearly over. Sri Lanka's overall exports last year were worth $ 4.73 billion, up marginally from $ 4.63 billion in the previous year but down considerably from the originally expected 10-to-12 percent growth.