By Paul Danahar in Delhi

Mrs Kumaratunga is on a three-day state visit to the capital.

It is thought that during the visit, an agreement may be signed to establish a free trade area between the two countries.

The details of the free trade area agreement are still being worked on by officials, but it is not clear whether the bureaucrats on both sides will get them sewn up in time for a signing of the agreement during this visit.

At present, trade between the two sides is heavily weighted in India's favour.

Both countries have agreed in principle on establishing a free trade zone.

It is an idea that all the countries in the South Asian Association for Regional Cooperation showed support for during their summit in the Sri Lankan capital Colombo in August.

But tensions between India and Pakistan in the wake of their nuclear tests meant that economic issues took a back seat, as did the previously stated goal of a full South Asian free trade area by 2001.

The economic fallout from the tests hit India hard as sanctions were imposed, provoking a fall in investor confidence.

The Indian economy was also hit by a bad monsoon that sent food prices spiralling and produced sharp criticism of the BJP-led government.