India's policy to facilitate trade in rupees is gaining attention from more countries, as eight countries including Sri Lanka have opened 50 Special Rupee Vostro Accounts (SRVAs) in the last six months.
With this arrangement, Indian importers can make payments in rupees for their imports from the partner country, which will be deposited in the concerned country's bank's vostro account. Based on the payment, the partner country's supplier will receive payment in their local currency. The deposited amount in the vostro account will be utilized for imports by the partner from India, which will reduce the demand for US dollars, ensuring that the currencies of India and its partner countries do not face downward pressure.
Sri Lanka, one of the eight nations with vostro accounts in India, will have better access to the Indian market once trade in Indian rupees commences. This is particularly beneficial for Sri Lanka, which recently faced an economic crisis and did not have enough foreign currency to import essential goods. This shortage had a major impact on the country's garment industry, which heavily depends on fabric supplies from India and other neighboring countries.
In the second half of last year, Sri Lanka's fabric imports from India decreased to $256.266 million compared to imports of $336.994 million in the first half of 2022 and $307.430 million in the second half of 2021. However, imports increased to $593.261 million in 2022 compared to $565.848 million in 2021. In 2020, Sri Lanka imported fabric worth $410.881 million, $485.160 million in 2019, $426.046 million in 2018, and $374.214 million in 2017.
The trade facilitation in rupees will enable Sri Lanka to overcome its foreign currency shortages, especially for its garment industry, which is a major contributor to the country's economy. It will also improve the trade relationship between India and Sri Lanka, providing more opportunities for bilateral trade and economic cooperation.