Tuesday Jun 16, 2026
Tuesday Jun 16, 2026
Tuesday, 16 June 2026 04:10 - - {{hitsCtrl.values.hits}}
By Nisthar Cassim
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| Indian High Commissioner Santosh Jha | Central Bank Governor Dr. Nandalal Weerasinghe |
Sri Lanka and India are exploring the potential to convert the $ 6 billion bilateral trade to Rupee basis on the basis of multiple advantages.
A top level roundtable titled “Rupee to Rupee: Strengthening the India-Sri Lanka Commercial Corridor” was held yesterday in Colombo involving multiple stakeholders to drive home the benefits as well as address challenges and tap the potential.
India’s High Commissioner Santosh Jah told the forum at which Central Bank of Sri Lanka Governor Dr. Nandalal Weerasinghe too was present, that Rupee to Rupee trade reduces transaction costs, eliminates conversion losses in both directions, and insulates bilateral trade from dollar volatility.
“For Sri Lanka specifically, it reduces pressure on scarce hard currency reserves, preserving dollars for uses where they are truly necessary, while rupee to rupee trade flows freely between our two economies,” Jha said.
It was pointed out that greater Rupee to Rupee trade represents a fundamental rethinking of how two of South Asia›s most closely connected economies conduct their commercial relationship.
He explained that every time an Indian exporter invoices in US dollars, and every time a Sri Lankan importer pays in US dollars, both sides are carrying unnecessary currency risk, paying unnecessary conversion costs, and adding a layer of dependency on a third country currency that neither of them issues controls, or in some cases finds easy to acquire.
Jha emphasised that de-risking and diversification are mantras in today›s global context, not just in the currency, but in commodities, in trade, and even in sourcing and selling it in terms of markets, relying on any one predominant mode of transaction in a highly disruptive world is high risk, extremely high risk areas. “There is a need to bring in new notes of resilience for Sri Lanka. This is not an abstract concern,” said Jha who recalled the impact of Sri Lanka’s 2022 economic crisis was at its core a foreign exchange crisis.
He recalled that when dollar reserves ran out, the entire economy, fuel, medicine, food, imports were impacted for decades.
“Trade between our two countries has been intermediate, intermediated through the US dollar, adding cost not just in currency terms, but as I said, in terms of the risk at every step, local currency settlement changes that calculus,” he added.
According to Jha the policy architecture is moving in exactly the right direction. The Reserve Bank of India has been methodically building the infrastructure for global INR acceptance over the past three years. The Central Bank of Sri Lanka has been a strong partner at every step. In 2022 the RBI enabled the opening of special rupee was to accounts allowing overseas correspondent banks to hold Rupees and settle trade without routing them through dollar systems, more recently in August 2025 the RBI simplified the process for authorised dealer banks to open these accounts without requiring prior RBI approval, removing a pre operational bottleneck, and then in October 2025 the RBI amended the foreign exchange management borrowing and lending regulations to permit authorised dealer banks, both in India and their branches abroad, to extend rupee denominated loans to residents of Bhutan, Nepal, and Sri Lanka, including banks in these jurisdictions, specially or specifically for cross-border trade transactions.
Participants of the roundtable were told that an Indian bank›s branch in Colombo can now lend in Indian Rupees to a Sri Lankan importer buying Indian goods. A Sri Lankan bank can borrow in INR to finance trade with India without touching the dollar at all.
“This is not incremental reform. It is a structural shift in how regional train trade finance can work,” stressed the Indian High Commissioner. It was pointed out that the RBI has been explicit that this is part of a broader strategy to reduce reliance on hard currencies in regional commerce, cut transaction costs, stabilise currency flows and deepen financial integration across the neighbourhood.
For Sri Lanka, Jha said having deeper access to rupee-based financing and settlement is an additional form of stability. Trade financed in INR does not add to Sri Lanka›s dollar liabilities. Imports paid in Rupees do not drain the foreign exchange reserves, and the strength and the predictability of the Indian economy provides a level of confidence in rupee-based instruments that few other regional currencies can offer.
According to Jha, INR denominated lines of credit have found acceptance already in Sri Lanka for the precise reason that INR-LKR denominated trade is being promoted.
“We are not suggesting the Rupee replace the dollar overnight, that is not the proposition. The proposition is more practical for trade between India and Sri Lanka, which is already at more than $ 6 billion annually, there is no reason why a growing proportion of it cannot be settled in our own currencies on our own terms through our own banking systems, but the most important part is the industry feedback and participation to drive the process, as policy frameworks and regulatory changes are necessary conditions, but they are not sufficient ones,” Jha said.
He said that “Rupee to Rupee” trade is also a statement of intent, which says the two countries are serious about conducting this relationship on their own terms, in their own currencies through their own institutions. It says the India Sri Lanka Commercial Corridor is mature enough and important enough to deserve its own financial architecture.
“I believe we are at an inflection point. The policy is in place, the intent is there on both sides. What is needed now is the institutional will, the operational design, and the industry confidence to make it work at this scale,” the Indian High Commissioner stressed.
The roundtable had representatives from the Treasury of Sri Lankan banks, exporters, importers, chambers of commerce, members of India CEO Forum and think tanks. It was aimed at hearing from them where the current system is working and where it is falling short. Are the existing frameworks being utilised, or are the operational barriers inhibited? Is the new INR lending provision going to translate into actual trade finance products, or is there a need for further regulatory clarity? What pricing benchmarks work for INR denominated trade instruments? What would make exporters on both sides more comfortable in voicing in Rupees?
“The answers to these questions will shape the next phase of policy,” said Jha, adding that India›s approach to INR global acceptance is evolving, hence the feedback sought from practitioners.
CBSL Governor Dr. Nandalal Weerasinghe said that the roundtable was “very timely” and that the two countries have been working during the past few years to facilitate greater INR and SLR transactions and facilitate trade between two nations.
He acknowledged that the initiative hasn’t picked up to the extent that both countries were hoping at the beginning. “So this is a good opportunity for us to reflect and have discussion and understand issues or obstacles that are new ideas and proposals that we can promote this important facilitation of trade between India and Sri Lanka,” Dr. Weerasinghe said.
In his presentation the CBSL Chief traced the importance of bilateral economic relationship which he identified as “one of the oldest and most enduring in South Asia.”
He was of the view that the commercial corridor between now two nations extends well beyond trade, citing growing tourism ties, investments and development assistance from India.
He said greater policy coordination, among regulators and the private sector are critical to further enhance economic integration.
“Our objective is to transform the India Sri Lanka promotion corridor into one of the most efficient, inclusive, and digitally connected economic corridors in the future,” Dr. Weerasinghe said adding that greater deep integration, financial and digital connectivity as well as efficient cross-border settlement mechanisms.
