South Asia has become the centre of geopolitics in recent decades with the rise of two Asian powers on the global stage. The economic and geographical competition between the two has culminated in the power struggles within the region, drawing attention to South Asia, particularly in the Indian Ocean region. Littoral states like Sri Lanka are well-positioned to play a critical role in the shifting geostrategic dynamics. The geopolitical location of Sri Lanka in the Indian Ocean has attracted the attention of both India and China, especially with the emergence of the Asia–Pacific Strategy and, subsequently, the Indo-Pacific Strategy. Sri Lanka's history took a convoluted turn after gaining independence. Its post-independence development has been challenging due to several factors, including the societal rift between the Sinhalese and the Tamils, a civil war that lasted for a decade, political instability, massive international loans, and borrowings for economic development. Both India and China have tried to make strategic inroads by extending their support to the island in various ways. India has made perennial efforts to bring Sri Lanka into its geostrategic orbit. However, this strategy has been hindered by China, which has employed “Salami Slice Diplomacy” Offering financial assistance to gain strategic leverage and counteract India’s influence in Sri Lanka. In this context, this paper delves into three major themes, (a) Sri Lanka’s emergence as an influencing factor in regional Politics, (b) Sri Lanka’s delicate balancing act between India and China. (c) Geopolitical and geostrategic Imperatives for extra-regional/global powers. The concentrated examination of the “Lankan Factor” in Indo–China relations enhances the existing literature by moving beyond conventional bilateral frameworks, illuminating Sri Lanka’s crucial position as both a strategic buffer and a bargaining tool in the dynamics of power within the Indian Ocean. It also provides significant insights pertinent to policy formulation in New Delhi and Beijing, resorting to theoretical discussions surrounding great-power rivalry, the strategies of smaller states, and the geopolitical dynamics of the Indian Ocean.