Local currency trading with Sri Lanka not feasible, says govt official

India does not find local currency trading feasible with Sri Lanka under the current circumstances. This is because there’s no demand for Indian goods at present, except for essential items that India is supplying under humanitarian 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 chief executive officer, Federation of Indian Export Organisations (FIEO), said a proposal for local currency trading was deliberated 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 currently contemplating local currency trading with Russia as Western nations imposed economic sanctions after Russia invaded Ukraine. Most of Russia’s banks have been cut off from the Society for Worldwide Interbank Financial Telecommunication (SWIFT) messaging system. 

However, unlike with 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 stood at $979 million. 

Sri Lanka is going through its worst financial crisis since its independence in 1948. Tourism is the third largest source of foreign exchange for Sri Lanka, behind remittances and apparel exports.  While Covid badly hit tourist inflows, the government’s decision last year to switch to organic farming by stopping usage of chemical fertilisers disrupted traditional farming. This led to sky-rocketing inflation. 

Russia’s invasion of Ukraine has only added to the woes since Russia constitutes a major source of tourists for Sri Lanka.   India has responded to urgent requests from Sri Lanka with assistance worth $2.4 billion since January. A line of credit of $500 million has been provided by Exim Bank for petroleum products. Another $1 billion for food, medicine and essential items has also been signed. 

The Reserve Bank of India (RBI) has also extended a currency swap of $400 million and deferred $500 million due for settlement through the Asian Clearance Union.

India’s high commissioner to Sri Lanka Gopal Baglay told ANI on Sunday that consignments of jet fuel, diesel and petrol have arrived in Sri Lanka and more will follow till May.  “The first consignment of rice from India is expected to arrive in Sri Lanka shortly under this credit facility. These facilities — negotiated and concluded within a matter of weeks — have proved to be the lifeline for the people of Sri Lanka,” he said.