Yes the south has been devastated by the dynamiters. The navy has finally started cracking down on them recently but it remains to see if it will be a long term effort. In any case, it will take a few years to recover. Sadly many tourists diving in Hikkaduwa and Unwawatuna often never see the better dive sites in Sri Lanka. Right now there are only a few sites I consider worth diving in the south.
I think Negombo has the best diving in terms of quality and accessibility. The fish life is actually similar to Thailand. Clouds of glassfish, schools of sweetlips, lots of lionfish etc. and there are a couple of dive operators so diving is easy to organize. Colombo is very good with great wrecks and good reefs but requires prior approval to dive due to security measures for the harbour. Hopefully they will lift restrictions soon. This last month we have seen everything from clownfish and lionfish to turtles, eagle rays, tuna, whale sharks and dolphins. There is also good diving on the northwest around Kalpitiya but no dive operators so you need to organize on your own.
Luko I think you are referring to the Great Basses on the southeast. He wrote a book on their expedition to salvage silver from a wreck there (Treasure of the Great Reef). Actually the wrecks there are old and broken up but the reef is interesting and fish life is good. But diving is only possible during a short window from mid March to mid April.
The Andamans is on my list to visit. Geographically though its closer to Thailand and would expect the reefs and species to be similar. As for Lakshadweep I would think the Maldives would be an easier alternative.
