India believes that local currency swaps with Sri Lanka are not possible under the current circumstances. This is because there is no demand for Indian products at present except for essential items that India provides for humanitarian reasons.
“It is not feasible at the moment. Sri Lanka does not have much to offer in terms of exports to India. We will continue to focus on supporting Sri Lanka,” an official said. government, aware of the discussions.
Ajay Sahai, chairman of the Federation of Indian Export Organizations (FIEO), said a local currency swap proposal had been deliberated by the government.
“In fact, we offered to trade in local currency. We said that since the balance of trade is in favor of India, we will have a situation where the money will be in our account. Since many companies are also looking for investment opportunities in Sri Lanka, this money can be used by them to invest there. However, we understand that this is a crisis we are facing and that we need to focus on humanitarian issues. Business can take place later,” he added.
India is currently considering exchanging local currencies with Russia as Western nations imposed economic sanctions after Russia invaded Ukraine. Most Russian banks have been cut off from the SWIFT (Society for Worldwide Interbank Financial Telecommunication) messaging system.
However, unlike Russia, India had a trade surplus of around $3.8 billion with Sri Lanka in 2021. India’s exports were $4.8 billion and imports were $979 million. of dollars.
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 garment exports. While Covid has hit the influx of tourists hard, the government’s decision last year to switch to organic farming by stopping the use of chemical fertilizers has disrupted traditional farming. This led to skyrocketing inflation.
Russia’s invasion of Ukraine has only added to the woes as Russia is a major source of tourists for Sri Lanka. India has responded to urgent requests from Sri Lanka with aid worth $2.4 billion since January. A $500 million line of credit was provided by Exim Bank for petroleum products. Another billion dollars for food, medicine and essential items has also been signed.
The Reserve Bank of India (RBI) also extended a $400 million currency swap and deferred $500 million due for settlement through the Asian Clearance Union.
Indian High Commissioner to Sri Lanka, Gopal Baglay, told ANI on Sunday that consignments of jet fuel, diesel and gasoline had arrived in Sri Lanka and more would follow until May. “The first shipment of rice from India is expected to arrive in Sri Lanka soon under this credit facility. These facilities – negotiated and concluded within weeks – proved to be the lifeline for the people of Sri Lanka,” he said.