The proposal has been with both governments since last year and was discussed again during the visit of a Sri Lankan delegation headed by defence secretary Chandrananda de Silva to New Delhi last week.

Officials said the proposal for the ferry first came from a Sri Lankan private shipping company and was forwarded to the government by the Board of Investment (BoI) here.

If the proposal goes through, it would fulfill the badly felt need for cheap transport between the two countries after a popular ferry service between Rameswaram in Tamil Nadu and Talaimannar on Sri Lanka's north-west coast was terminated in the early 80s as the ethnic conflict here intensified.

According to government figures, over one lakh Sri Lankans travel every year to India on business, holidays and pilgrimages. Roughly 40,000 Indians visit Sri Lanka annually. It is expectedthat the numbers could swell dramatically with a ferry service and give a boost to tourism on both sides.

Officials said both governments were agreed to the proposal in principle but the details had to be worked out. The Tuticorin-Colombo proposal charts a route for the ferry that is outside Sri Lanka's troubled waters and though it would take much longer than the earlier route, is considered quite safe.

The only condition from the Indian side is that proposals from operators in both countries must be considered and that once started, the service should be operated on sustainable basis as it may require considerable infrastructure addition at Tuticorin port.

Pricing will be the all-important consideration in sustainability. Though the two sides are still far away from discussing this aspect, it is learnt that the BoI-forwarded proposal was for a return fare of $ 100.

Officials are aware that this is only marginally lower than the air fare between Chennai and Colombo, and that the fare has to be muchcheaper for the ferry to become viable.