Recently, the Sri Lankan Foreign Minister, Ali Sabry, said that Colombo is looking into the possibility of using the Indian Rupee for local transactions, and this move will allow tourists and other people to directly use the Indian currency and avoid the hassle of multiple currency conversion.
Accepting the Indian Rupee will prove beneficial for the Island nation as the trade imbalance between the two countries is in favour of India. Sabry said, “We need more Indian currency, so more Indian people coming here and spending Indian currency is good for us.”
According to official figures, the bilateral trade between the two nations stood at 5.45 billion USD in 2021. Sri Lanka imports plenty of items from India which include food, medicine, pharmaceuticals, automobiles, construction materials, chemicals and fertilizers.
The Foreign Secretary, Vinay Mohan Kwatra, on July 21, 2023, said that “tourism flow from India has been the consistent contributor to the economic and foreign exchange inflows into 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, developments and trade agreements signalling economic growth and ties between the two nations. In 2022, India provided assistance to the island nation worth over 4 billion USD that, included food, medicine and fuel.
Apart from this, India was the first creditor to extend a letter of support towards Sri Lankan debt restructuring efforts that helped kickstart support from the International Monetary Fund (IMF). The total debt of Sri Lanka has exceeded 83 billion USD, of which 41.5 billion USD is foreign, and 42.5 billion is domestic. The country has now started the process of restructuring its debt.
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 forged stronger and mutually benefitted commercial linkages and operationalised the Unified Payments Interface (UPI) based digital payments for enhancing trade and transactions between businesses and common people.
The two countries also signed the Network-to-Network Agreement between the NIPL and Lanka Pay for the UPI application acceptance in Sri Lanka after bilateral talks between Modi and Wickremesinghe. On an MoU that was signed between the two nations on the development of Trincomalee as the regional hub of energy, industry, and bilateral cooperation saw no objections from China.
“We are a non-aligned state, we only have signed an MoU to identify feasible projects through a joint committee. I do not think that any country will have a problem with the dealings,” Sabry said. He said that both leaders agreed on the importance of connectivity between the two countries.
“To reach the next level, we need investments. We discussed ways in which this will be beneficial to the countries. The tie-up between not only the two governments but also with the private sector.” He said that the possibility of Sri Lanka benefitting from the vast Southern Indian region was considered.
“India and Sri Lanka are working and deliberating between the ports for this purpose,” Sabry said. The need for port connectivity between Colombo and Trincomalee and the south Indian region was agreed upon between the two leaders. He also remarked that the necessary studies on building a bridge for land connectivity or continuing with the existing ferry services would soon be undertaken.
Getting and establishing an Indian University on board to help Sri Lanka’s digitalisation was also discussed, he added. The strategic location of Sri Lanka in the Indian Ocean Region (IOR) has long attracted two Asian giants, namely the Peoples Republic of China and India.
Chinese influence on Sri Lanka
For years, free-flowing loans and infrastructure investments from Beijing helped it gain the upper hand against New Delhi in the quest for influence. But the country’s economic collapse in the year 2022 has given New Delhi an opportunity to swing the pendulum back in its favour, especially as China delayed its support for debt restructuring, experts say. China owns ten per cent of Sri Lanka’s debt.