Sri Lanka has two main ethnic groups: the Tamil-speaking Hindu minority and the Sinhala-speaking Buddhist majority. Due to several reasons, tensions developed between the two groups, leading to periodic riots and violence. A section of Tamils took up arms, advocating militant secessionism. During the anti-insurgency operations, the Sri Lankan government was accused of carrying out state terrorism.

Obviously, the Tamils in India were sympathetic towards the cause of the Sri Lankan Tamils. Since the British days, a section of Tamil leaders in India had been cribbing about the "Aryan" dominance in Indian politics (see Dravida Nadu). In order to thwart off any secessionist feelings in India (and to gain political mileage), the Indian government decided to show the Tamils how much it cared for them. So, India ended up supporting many of the Tamil nationalist groups in SL, offering them military training as well as financial support. The people trained by RAW included the LTTE supremo Prabhakaran and the team that later became responsible for Rajiv Gandhi's assassination.

Apart from the "We care for the Tamils" thing, India also wanted to be seen as an influential regional power. Although both India and SL were officially non-aligned, India was a cronie of the USSR, and SL was becoming pro-US day-by-day. In addition, Pakistan started supporting Sri Lanka (in the 1971 war, SL had allowed it to fly refinforcements to East Pakistan). Pakistan provided Sri Lanka with military training, ammunition, tanks and military advisors among other things. This led to political tensions between the India and SL.

As the human rights crisis in SL worsened, the Indian Tamil leaders urged the Indian government to directly intervene in the situation. India asked Sri Lankan government to stop its military operations, but SL refused to oblige. In 1987, when India sent some unarmed ships with food, medicines and other supplies, the SL Navy forced them back home. In order to show its might to Sri Lanka (and to its supporter Pakistan), India violated the Lankan airspace to drop the supplies (Operation Poomalai).

The Sri Lankan government became concerned that India would follow this with military operations. So, it took time off for negotiations, resulting in the Indo-Sri Lanka Accord. As per the accord, SL agreed to many of the Tamil leaders' demands (such as declaring Tamil one of the national languages and granting more powers to the provinces). In return, India agreed to stop supporting the militant groups and to provide military support to Sri Lanka for enforcing peace. It sent the Indian Peace Keeping Force (IPKF) to Lanka, to which the Tamil militant groups surrendered.

However, LTTE, the most extremist of the militant groups, returned to violence some days later. Now, India would have looked like a huge hypocrite if it still supported the LTTE. After all, SL had agreed to nearly all of its demands and India had agreed to support it against the militants. So, the IPKF was ordered to forcefully disarm LTTE. The entire IPKF episode was a major image disaster for India. IPKF was accused of massacring civilians (both Tamils and Sinhalese) on multiple occassions (e.g. Jaffna hospital massacre and Valvettiturai massacre). In addition, it also suffered heavy casualties, leading to anti-Vietnam-war-like voices of protests back home. Finally, when VP Singh was elected as the new PM, he agreed to withdraw IPKF from Sri Lanka. Rajiv Gandhi was later assassinated by a militant team in 1991 (LTTE denied responsibility).