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.
He declined to elaborate but said India would shortly begin the training of Sri Lankan policemen.
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