The Deputy High Commissioner of India to Sri Lanka, Vinod K. Jacob, attending the inauguration of the Medicare 2023 health care exhibition in Colombo on March 3, 2023 stated that India-Sri Lanka bilateral relations are at their peak, citing deep-rooted people-to-people connections as the main reason. One of the most recent additions to the bilateral ties was discussions between the High Commissions of India and Sri Lanka on the use of Indian Rupee (INR) for economic transactions between India and Sri Lanka on 2 March 2023.
Representatives from the Bank of Ceylon, the State Bank of India, and the Indian Bank shared their experiences and informed the audience that they had begun carrying out INR-denominated trade transactions through respective Vostro/Nostro accounts after the Reserve Bank of India (RBI) and the Central Bank of Sri Lanka (CBSL) created an enabling framework in 2022.
It was the High Commission of India that organised a discussion on the use of Indian Rupee (INR) for economic transactions between India and Sri Lanka on 2 March 2023. The participating banks outlined the benefits of settlements denominated in INR which includes shorter timelines, lower exchange costs and easier availability of trade credits etc. The beneficial impact of this initiative on the tourism and hospitality industry was also highlighted including its role in helping increase collections which could be utilized by other sectors.
The participating banks also discussed the advantages of settlements denominated in INR, such as shorter timelines, lower exchange costs, and easier availability of trade credits, among other things. The initiative’s positive impact on the tourism and hospitality industries was also highlighted, including its role in increasing collections that could be used by other sectors.
In international trade transactions, Vostro and Nostro accounts are used to facilitate the transfer of funds between banks and countries. A Vostro account is a term used by the bank that holds the account to describe an account held by another bank. If Bank A in the US holds an account for Bank B in France, Bank A would refer to this account as a Vostro account.
A Nostro account, on the other hand, is a term used by the bank that owns the account and refers to an account held by a bank in another country. Using the same example as before, Bank B in France would refer to Bank A’s account in the US as a Nostro account.
When two parties in different countries conduct business, they will typically use their respective Vostro and Nostro accounts to facilitate the transfer of funds. For example, if a company in the United States purchases goods from a supplier in France, the company’s bank will use its Vostro account in France to transfer funds to the supplier’s Nostro account, which is held by the supplier’s bank in France. The use of Vostro and Nostro accounts helps to simplify international trade transactions by providing a standardized method for moving funds between banks in different countries. Banks can reduce the risk of currency exchange rate fluctuations and other issues that may arise during international transactions by using these accounts.
There are some neighbouring countries where the Indian rupee is also used for economic transactions to some extent. In Bhutan where Bhutan’s currency is the Ngultrum (BTN), is pegged to the Indian rupee. The Indian rupee is also accepted as a legal tender in Bhutan.
In Nepal too the Indian rupee is widely accepted, especially in border areas. It is also noteworthy that Zimbabwe has been using a basket of foreign currencies, including the Indian rupee, since 2009 as its official currency. Also, some parts of Bangladesh, mainly in border areas of Bangladesh, the Indian rupee is accepted as a form of payment, although it is not an official currency of the country.
Deputy High Commissioner’s remarks that the India-Sri Lanka bilateral ties are at its peak and mainly referred to five specific developments that is central to the excellent bilateral relationship.
Over the years, India and Sri Lanka have signed several bilateral agreements to strengthen their relationship, including trade agreements, cultural exchange programmes, and defence cooperation, despite occasional tensions and disagreements, particularly over maritime boundary disputes, and the two countries have also disagreed over China’s growing influence in the region.
The diplomatic relations between India and Sri Lanka are subject to change based on various factors such as geopolitical changes, leadership changes, and other international developments and India and Sri Lanka have continued to engage in high-level visits and meetings, and have signed several agreements in recent years to enhance their economic and security ties.
The diplomat pointed out that people and Government of India extended support during Vaccine Maitri and with expedited issuance of medical visas, immediately after lifting of travel restrictions by Government of Sri Lanka and also a substantial support was extended through the iconic Suwaseriya 1990 ambulance during Covid-19 as well as through medical supplies in response to specific requests from hospitals in Kandy Hambantota and Jaffna.
He recalled that Sri Lanka request from Government of Sri Lanka the people and Government of India extended economic, financial and humanitarian support worth USD 4 billion in 2022.
India has been supporting Sri Lanka at G20 meetings and also invited HE President Ranil Wickremesinghe to Voice of Global South Summit in January 2023 as a mark of solidarity.
India was instrumental in sharing intelligence data that exposed the island’s growing network of Islamic extremists. Although the Easter attacks could possibly have been prevented it was India that alerted Sri Lanka.
China’s growing influence in Sri Lanka has indeed caused concern in India. Sri Lanka is a strategically important country in the Indian Ocean region, and India sees China’s increasing presence there as a potential threat to its security.
India established a cultural center in Jaffna and is currently working to launch a ferry service between South India and Sri Lanka. Additionally, the opening of the international airport in Palaly has encouraged travelers from both sides to use its land and air services.
In response to China’s growing influence in Sri Lanka, India has sought to deepen its own ties with Sri Lanka, offering support for economic development and security cooperation. India has also sought to work with other countries in the region, such as Japan and Australia, to counter China’s influence in the Indian Ocean.