India to go for new EXIM trade settlement with Sri Lanka once duly elected government in place

India’s International Trade Settlement in Indian rupees with Sri Lanka will commence only when an elected government is in place, a top Finance Ministry official has said. Further, India is not targeting any specific country for the new mechanism.

“As of now, Sri Lanka has no proper government. So, the issue is who will be the pointperson to negotiate for the new mechanism,” a top Finance Ministry official told BusinessLine.

Indian government is hoping that an elected government is in place soon in the trouble-torn Island nation. Sri Lanka is facing worst ever economic crisis leaving millions struggling to buy food, medicine, fuel and other essentials. Last week Prime Minister Ranil, Wickremesinghe, who has now been appointed as Acting President, said Sri Lanka is now a bankrupt country.

On Wednesday, President Gotabaya Rajapaksa fled to the Maldives. Under the Sri Lankan Constitution, if both the president and prime minister resign, the Speaker of parliament will serve as acting president for a maximum of 30 days. The Parliament will elect a new president within 30 days from one of its members, who will hold the office for the remaining two years of the current term. Meanwhile, Sril Lanka is to vote for new President on July 20, as announced by Parliament Speaker Mahinda Yapa Abeywarden

With dollar fund is extremely low, the island nation is heavily dependent upon India for essential items including fuel. On Wednesday, the Indian High Commission in Sri Lanka said it is reiterated that “India will continue to support the people of Sri Lanka as they seek to realise their aspirations for prosperity and progress through democratic means and values, established democratic institutions and constitutional framework.”

In such a situation new rupee mechanism could be very useful for Sri Lanka. On Monday, the Reserve Bank announced that in order to promote growth of global trade with emphasis on exports from India and to support the increasing interest of global trading community in INR, it has been decided to put in place an additional arrangement for invoicing, payment, and settlement of exports / imports in in Indian Rupee. For settlement of such trade transactions, Indian banks will require Special Rupee Vostro Accounts of correspondent bank/s of the partner trading country. The exchange rate will be determined bilaterally.

The person quoted above also said India is not targeting any specific country for new alternative. “Any country facing problems in dollar supply may join hand for new mechanism,” the person mentioned. It may be noted that many countries in Africa and South America are facing huge forex shortages, the move allowing exim transactions through letter of credit will help exporters and importers.

Under the new mechanism, in order to allow settlement of international trade transactions through this arrangement, it has been decided that Indian importers undertaking imports through this mechanism will make payment in Indian Rupees which shall be credited into the Special Vostro account of the correspondent bank of the partner country, against the invoices for the supply of goods or services from the overseas seller /supplier. Similarly, Indian exporters, undertaking exports of goods and services through this mechanism, will be paid the export proceeds in Indian Rupees from the balances in the designated Special Vostro account of the correspondent bank of the partner country.

Experts feel new mechanism is big move towards recognition of the Indian rupee as an international currency.