INR Considered for Economic Transactions Between India and Sri Lanka

India and Sri Lanka are exploring the possibility of using the Indian Rupee (INR) for economic transactions. The High Commission of India organised a discussion on the use of the INR for transactions between the two countries, which was attended by representatives from the Bank of Ceylon, State Bank of India, and the Indian Bank. These representatives shared their experiences of carrying out INR-denominated trade transactions through respective Vostro/Nostro accounts after the creation of an enabling framework by the Reserve Bank of India (RBI) and the Central Bank of Sri Lanka (CBSL) in 2022.

The banks outlined the benefits of settlements denominated in INR, including shorter timelines, lower exchange costs, and easier availability of trade credits. They also highlighted the beneficial impact of this initiative on the tourism and hospitality industry, including its role in helping increase collections that could be utilised by other sectors.

High Commissioner of India to Sri Lanka, Gopal Baglay, highlighted the positive impact that the initiative will have on building a stronger and closer economic partnership between the two countries through trade and investment-led measures. Sri Lanka’s finance minister, Shehan Semasinghe, appreciated the close economic relationship between the two countries 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.

India extended assistance worth over USD 3.8 billion to Sri Lanka last year 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. He 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, according to a report in The Island newspaper.

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. The RBI team referred to the close cooperation with CBSL and RBI’s commitment to further facilitate this process, it said.

The IMF in September last year approved Sri Lanka a USD 2.9 billion bailout package over four 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.

This initiative is expected to boost trade and investment ties between India and Sri Lanka. The use of the INR for economic transactions will benefit both countries by reducing exchange rate risks and transaction costs associated with trade between the two countries. It will also increase the efficiency of the trade process and facilitate cross-border transactions, which will help to increase bilateral trade.

In addition, the initiative will have a positive impact on the tourism and hospitality industry, which is a significant contributor to both countries’ economies. The use of the INR for transactions will make it easier for tourists to make payments and help businesses in the tourism sector to manage their finances more efficiently.

The initiative will also help to strengthen the economic ties between India and Sri Lanka, which have been growing in recent years. Both countries have been working towards building a stronger economic partnership through trade and investment-led measures, and the use of the INR for economic transactions is a step in that direction.

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