By the beginning of this millennium, Sri Lanka reached a lower middle-income country status, with an average per capita income of $860. However, the agricultural sectors share in gross domestic product (GDP) has been on the decline, from 28%in the early 1980’s to about 20% in 2000. Ahead only of the Maldives (16%), Sri Lanka now stands as the second lowest in the South Asian region, in agricultural contribution to GDP. This policy note focuses on examining the constraints to promoting more rapid agricultural and rural non-farm sector growth in Sri Lanka through (i) reviewing the recent agricultural and rural non-farm sectors in Sri Lanka, (ii) examining the major policy and regulatory impediments that hinder rapid and sustained growth in rural areas and, (iii) proposing options for improvement in the key areas and identifying issues requiring further study.