India doesn’t find local currency trading feasible with Sri Lanka under the current conditions. This is on the grounds that there’s no interest in Indian products as of now, aside from fundamental things that India is providing on philanthropic grounds.
“It is not feasible at present. Sri Lanka does not have much to offer in terms of exports to India. We will continue to focus on supporting Sri Lanka,” a government official, privy to the discussions, said.
Ajay Sahai, director general and CEO, Federation of Indian Export Organizations (FIEO), said a proposition for local currency trading was pondered by the government.
“In fact, we proposed trading in local currency. We said that since the balance of trade is in India’s favour, we will have a situation where money is lying in our account. Since a lot of companies are looking at investment opportunities in Sri Lanka also, that money can be used by them for investment there. However, we understand that this is a crisis we are dealing with and our focus should be on humanitarian issues. Business can take place later,” he added.
India is right now mulling over local currency trading with Russia as Western countries imposed economic sanctions after Russia attacked Ukraine. The majority of Russia’s banks have been cut off from the Society for Worldwide Interbank Financial Telecommunication (SWIFT) messaging system.
However, dissimilar to Russia, India had a trade surplus of about $3.8 billion with Sri Lanka in 2021. India’s exports were $4.8 billion and imports remained at $979 million.
Sri Lanka is going through its most awful financial emergency since its independence in 1948. The travel industry is the third biggest source of foreign exchange for Sri Lanka, behind remittances and apparel exports. While Covid severely hit tourist inflows, the public authority’s decision last year to switch to organic farming by halting the use of chemical fertilisers disturbed customary cultivating. This prompted soaring inflation.
Russia’s attack on Ukraine has simply added to the misfortunes since Russia comprises a significant source of tourists for Sri Lanka. India has answered critical solicitations from Sri Lanka with help worth $2.4 billion since January. A credit extension of $500 million has been given by Exim Bank for petroleum products. Another $1 billion for food, medication and fundamental things has additionally been agreed upon. The Reserve Bank of India (RBI) has additionally broadened a currency swap of $400 million and conceded $500 million due for repayment through the Asian Clearance Union.