India, Sri Lanka Discuss Possibility Of Using Indian Rupee For Economic Transactions To Boost Ties

India and Sri Lanka are mulling over the possibility of using the Indian Rupee for economic transactions to build a stronger and closer partnership through trade and investment-led measures.

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New Delhi: India and Sri Lanka are considering and exploring the possibility of using the Indian Rupee for economic transactions. The two countries have discussed the initiative that will help in building a stronger and closer partnership through trade and investment-led measures between the two neighbouring countries, as reported by the news agency PTI.

The High Commission of India in Colombo had organised a discussion on the use of the Indian Rupee (INR) for transactions between India and Sri Lanka on Thursday.

"Representatives from the Bank of Ceylon, State Bank of India and the Indian Bank shared their experiences and informed the audience that they had started carrying out INR-denominated trade transactions through respective Vostro/Nostro accounts after the creation of enabling framework by the Reserve Bank of India (RBI) and the Central Bank of Sri Lanka (CBSL) in 2022," the High Commission said in a statement, as reported by PTI.

The banks, who took part in the discussion, also highlighted the benefits of settlements denominated in INR which includes shorter timelines, lower exchange costs and easier availability of trade credits. The positive impact of this initiative on the tourism and hospitality industry was also highlighted including its role in helping increase collections which could be utilised by other sectors.

High Commissioner of India to Sri Lanka Gopal Baglay highlighted the positive impact that the initiative will have in the joint efforts for building a stronger and closer economic partnership between the two countries through trade and investment-led measures.

Sri Lanka’s finance minister Shehan Semasinghe hailed the close economic relationship between the two nations and the financial and humanitarian support extended by India over the past year, including the strong financing assurances provided by New Delhi, in the context of the IMF support programme for Sri Lanka, PTI reported.

Last year, India extended assistance worth over USD 3.8 billion to Sri Lanka to help it deal with the economic crisis. Governor of the CBSL, Dr. P Nandalal Weerasinghe, highlighted the strong desire among Indian and Sri Lankan business communities for enabling trade settlements in INR.

According to a report in The Island newspaper, Weerasinghe called for expanding this facility, over a period of time, to utilise it for the full range of capital and current account transactions. He also appreciated the wide-ranging participation from stakeholders in Sri Lanka and India which included more than 300 attendees in the physical format, apart from those that joined online. 

A team from RBI joined the discussion in the online format and indicated the possibility of settlement of current account transactions in goods, as well as services, in INR, apart from the option of undertaking permitted capital account transactions, as reported by PTI. The RBI team referred to the close cooperation with CBSL and RBI’s commitment to further facilitate this process, it said.

In 2022, Sri Lanka was hit by an unprecedented financial crisis, the worst since its independence from Britain in 1948. The crisis was caused by a severe paucity of foreign exchange reserves which led to political turmoil in the country. The crisis resulted in the ouster of the all-powerful Rajapaksa family.

In September 2022, the IMF approved Sri Lanka a USD 2.9 billion bailout package over 4 years pending Sri Lanka’s ability to restructure its debt with creditors - both bilateral and sovereign bondholders. With assurances from creditors, the USD 2.9 billion facilities could get the IMF board approval in March, as reported by PTI.