Sri Lanka is considering using Indian currency to settle local transactions in the country

Recently, Sri Lankan Foreign Minister Ali Sabry said that Colombo is studying the possibility of using the Indian rupee for local transactions and this move will allow tourists and other people to use the Indian currency directly and avoid the hassle of multiple currency conversions.

The acceptance of the Indian rupee will prove beneficial for the island nation as the trade imbalance between the two countries favors India. Sabry said, “We need more Indian currency, so it’s good for us that more Indians are coming here and issuing Indian currency.”

According to official figures, bilateral trade between the two nations was worth US$5.45 billion in 2021. Sri Lanka imports numerous goods from India, including food, medicines, pharmaceuticals, automobiles, building materials, chemicals and fertilizers.

Foreign Minister Vinay Mohan Kwatra said on July 21, 2023 that “tourism flow from India has consistently contributed to economic and foreign exchange inflows to Sri Lanka.”

India’s efforts to support Sri Lanka during its economic crisis

Earlier, Ranil Wickremesinghe, the President of Sri Lanka, signed a series of energy, development and trade agreements signaling economic growth and relations between the two nations. In 2022, India provided over US$4 billion in aid to the island nation, including food, medicine and fuel.

Additionally, India was the first creditor to send a letter of support for Sri Lanka’s debt restructuring efforts, which helped boost support from the International Monetary Fund (IMF). The total debt of Sri Lanka has exceeded US$83 billion, of which US$41.5 billion is foreign and US$42.5 billion domestic. The country has now started debt restructuring.

Bilateral agreements between the two nations

On July 21, 2023, both countries noted that the decision to designate INR (Indian Rupee) for trade settlement between the two countries has resulted in stronger and mutually beneficial trade relations and has put into operation the Unified Payments Interface (UPI) based digital payments to improve trade and transactions between businesses and ordinary people.

Following bilateral talks between Modi and Wickremesinghe, the two countries also signed the Network-to-Network Agreement between the NIPL and Lanka Pay for accepting the UPI application in Sri Lanka. China has not objected to an MoU signed between the two nations on the development of Trincomalee as a regional center for energy, industry and bilateral cooperation.

“We are a non-aligned state, we have only signed an MoU to identify viable projects through a joint committee. I don’t think any country will have a problem with business,” Sabry said. He said both leaders agreed on the importance of connectivity between the two countries.

“To reach the next level, we need investments. We have discussed ways in which this will benefit countries. The link not only between the two governments but also with the private sector.” He said the possibility that Sri Lanka could benefit from the vast southern Indian region is being considered.

“India and Sri Lanka are working and advising between ports to this end,” Sabry said. The two leaders agreed on the need for a port link between Colombo and Trincomalee and the South Indian region. He also noted that the necessary studies to build a bridge for the land connection or to continue the existing ferry services would be carried out soon.

He added that there is also talk of bringing on board and founding an Indian university to support Sri Lanka’s digitization. Sri Lanka’s strategic location in the Indian Ocean (IOR) region has long attracted two Asian giants, namely the People’s Republic of China and India.

Chinese influence on Sri Lanka

For years, free-flowing credit and infrastructure investment from Beijing helped him gain the upper hand over New Delhi in a bid for influence. But the country’s economic meltdown in 2022 has given New Delhi an opportunity to swing the pendulum back in its favor, especially as China delayed its support for the debt restructuring, experts say. China owns 10 percent of Sri Lanka’s debt.

Related Articles

Back to top button

Subscribe To Our Newsletter

Don't miss new updates on your email