Sri Lanka has signed an agreement with India for $149m reconstruction of the rail line between Pallai and Kankesanthurai in the northern province of the country.
The 56km project is likely to be completed within two years.
Construction of the rail track will be carried out by Indian Rail's unit Ircon after completion of the rail line will provide an efficient rail transportation system covering the entire rail system from north to south Sri Lanka.
After the completion of the line connecting the northern province to the rest of Sri Lanka, Yala Devi Express trains will run on the route and boost economic opportunities.
Yala Devi Express was curtailed in the early 90s because of the war between the LTTE and the Sri Lankan Government forces.
Currently the express train runs until Omanthai.
Pallai and Kankesanthurai line will give a boost to economic activity with India as it will provide a surface transport link nearer to India; Nagapattinam in India's Tamilnadu state is just over 60 miles away.
The project has been funded as a part of India's $800m line of credit with a repayment period of 20 years and a five-year moratorium.
India has also provided another loan worth $167.4m to the southern coastal railway line project.
Ircon already completed the 42km Galle-Matara section of the Sri Lankan coastal railway in February 2011, which is now operational.
Construction work on the Kalutara-Galle section is scheduled to be completed by 31 March 2012.
In addition, Ircon is also carrying out other rail projects in Sri Lanka, including the restoration of the 106km-long Medawachchiya-Talaimannar section, 90km-long Omanthai-Pallai section, and supply and installation of signalling and telecommunication systems on the entire railway network in the northern province.
The rail projects, along with the ongoing rehabilitation of Kankesanthurai harbour and the restoration of the ferry service between Rameswaram (India) and Talaimannar, are expected to promote connectivity and boost trade between India and Sri Lanka to around $900m.
The Sri Lankan Government is hoping to attract $3bn worth of foreign direct investment (FDI) into the country by 2015, 15-20% of which it expects to get from India.