India had last week raised the issue in Colombo through its mission after the Commerce Ministry expressed concern over the hike in import tariff.
"The fact of the matter is that it (hike in import tariff) is not directed to Indian products. We have a balance of payment problem because our income from exports was not enough," Sri Lankan Senior Minister for International Monetary Cooperation and Deputy Minister of Finance and Planning, Sarath Amunugama told PTI.
About three times of income from exports was going out for particularly oil and debt repayment but also for luxury and semi-luxury items like vehicles, he added.
Asked if his country was willing to consider India's request to lower the import tariff as its exports are getting impacted, he said: "We can't afford it at the present moment but eventually we will... The need really is to improve our exports and India can help by buying more Sri Lankan products then there will be a balance in the trade."
According to Society of Indian Automobile Manufacturers (SIAM), the neighbouring country has increased import duties on vehicles by almost 100 per cent, which has adversely impacted exports from India.
Last year, India had exported vehicles worth $6 billion out of which automobiles worth $800 million had been sold in the Sri Lankan market. Earlier, the increase in duties affected exports of small cars, two-wheelers and three-wheelers from India but very recently Sri Lanka had increased duties on sports utility vehicles as well.
Justifying the step taken, Mr Amunugama said: "It so happened that many of the low-end vehicles, cheaper vehicles were being manufactured in India but those are the popular ones, so a large outflow of foreign exchange as a result.
"So what we are trying to do is, till we stabilise the situation, we have to put these taxes to prevent the outflow of foreign exchange. Once we are more stable, I think we can take another look at this," he added.
While India's exports to Sri Lanka stood at $4.37 billion in 2011-12, imports aggregated at $721 million in the same period.(NDTV)