The proposed pact would provide a formal structure for the ongoing cooperation between the defence establishments of the two neighbours, Singh told reporters here.
"The defence agreement is in the process of being finalised," he said.
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He declined to elaborate but said India would shortly begin the training of Sri Lankan policemen.
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The two countries also formally agreed to set a December 2005 deadline to upgrade their current free trade agreement to a "Comprehensive Economic Partnership Agreement", a joint statement said.
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They had in addition discussed the utilisation of a 380 million dollar Indian