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India permits SL to settle US $1 bn credit facility in Indian rupees.

The Reserve Bank of India said that India’s trade transactions with Sri Lanka, falling under a recent credit facility agreement with Sri Lanka, may be settled in INR outside the Asian Clearing Union (ACU) arrangement mechanism.

The decision was taken in view of the difficulties being experienced by exporters in receipt of export proceeds from Sri Lanka and the State Bank of India’s credit facility agreement dated March 17, 2022 with the Government of Sri Lanka.

The sanction was given by the Government of India guaranteed USD 1000 million term loan to Sri lanka for financing purchase of essential goods by Sri Lanka from India.

Under the arrangement, financing of export of eligible goods and services from India, as defined under the agreement, would be allowed subject to their being eligible for export under the Foreign Trade Policy of the Government of India and whose purchase may be agreed to be financed by SBI under this agreement.

India recently extended this  $1 billion credit facility to Sri Lanka which is in the midst of a severe economic crisis triggered by a shortage of foreign exchange.

The “short term concessional loan facility” will be provided by State Bank of India, under an agreement signed between the two governments 

.

“Neighborhood first. India stands with Sri Lanka. US$ 1 billion credit line signed for supply of essential commodities. Key element of the package of support extended by India,” Jaishankar tweeted.

The assistance is to enable Sri Lanka to import food, other essential commodities and medicines from India, and was described by an Indian official as a “humanitarian measure to help the Sri Lankan people during a difficult time”

.

With this, Delhi has provided a total financial assistance of $2.4 billion to Sri Lanka since January, but this will only partially help mitigate the country’s economic meltdown.

A media release from the Sri Lankan High Commission in Delhi said the two sides have agreed to set up a framework for “short, medium and long-term economic cooperation between the two countries, aimed at addressing Sri Lanka’s present economic challenges”

.

Along with India’s emergency financial assistance, Delhi has also conveyed to Colombo that Indian investments in renewable energy, ports, logistics, infrastructure and connectivity will help Sri Lanka build capacity “holistically”, repairing its economy.

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