Context: The Reserve Bank of India has agreed to a $400 million currency swap facility for Sri Lanka till November 2022.

More on the news:

  • The RBI’s action follows a recent bilateral ‘technical discussion’ on rescheduling Colombo’s outstanding debt repayment to India which stands at approximately $960 million.
  • Earlier, the Sri Lankan Prime Minister had sought a loan moratorium, during his visit to New Delhi.


Currency Swap Agreement:

  • A currency swap is a transaction in which two parties exchange an equivalent amount of money with each other but in different currencies. 
  • The parties are essentially loaning each other money and will repay the amounts at a specified date and exchange rate. 
  • After this pact, countries don’t require dollars to trade between themselves.
  • It support the national currencies against the dollar.

Current phase in Indo-Sri Lanka relations: The current phase in relations is one where New Delhi is “patching up with the Rajapaksas”. 

  • Usually it was Sri Lanka’s newly elected President or Prime Minister who visited India first. In contrast, Minister of External Affairs S. Jaishankar’s Colombo visit in November 2019, to meet the newly-elected President Gotabaya Rajapaksa.
  • Prime Minister Narendra Modi announced a $450 million line of credit to Sri Lanka during President Rajapaksa’s visit to New Delhi soon after he “showed a proactive, relations-building” approach. 

Significance: The bilateral relationship between India and Sri Lanka “will always be an important cornerstone of a peaceful and prosperous South Asia”. The examples of Singapore-Malaysia and New Zealand-Australia indicate that a smaller country's economic success is tied to having a strong or at least stable relationship with its larger neighbour. 


  • Opposition to East Container Terminal (ECT) project: Sri Lanka recently told that there was no final decision on the East Container Terminal (ECT) project at the Colombo Port, which Sri Lanka, India and Japan in 2019 agreed to jointly develop. 
    • It shows that the Rajapaksa administration, “invariably succumbs” to Sinhala nationalist groups. 
  • A comparison of Indian assistance extended in the neighbourhood shows “discriminatory tendencies” as per Sri Lanka.
  • India-China prism: South Asia watchers often resort to the India-China geopolitical lens, while analysing Sri Lanka’s international relations in the neighbourhood and beyond. 
    • After the Galwan Valley clashes, two of Sri Lanka’s closest partners were on either side of the tension. Sri Lanka did not comment on the development. 
  • The Tamil question: The pending implementation of the 13th Amendment to the Sri Lankan Constitution, an outcome of the Indo-Lanka Accord of 1987, is a bottleneck in bilateral relations. 
    • India has been pressing Sri Lanka to implement the 13th amendment on devolution of powers to fulfil the aspirations of the ethnic Tamils.

The 13th amendment that followed the Indo-Sri Lankan Accord of July 1987 signed between then Prime Minister Rajiv Gandhi and Sri Lankan President J R Jayewardene envisaged devolution of powers to the provinces in the midst of the island’s bitter ethnic conflict.

Way forward: From economic cooperation to fighting COVID-19, both countries have diverse avenues to deepen ties.

  • Economic and people-to-people links: Both India and Sri Lanka should focus on increasing the volume and quality of people-to-people links, without assuming they will naturally result from geographical proximity.
  • Covid- 19 fight: Given the successful India-assisted ‘Suwa Seriya’ ambulance service, and the pressing needs following COVID-19, India and Sri Lanka should enhance links in the health sector, including in telemedicine. 
    • The fact that several Indian companies are involved in the race to develop a vaccine presents India with a potentially huge, once-in-a-generation opportunity to cement its goodwill with the neighbourhood by securing regional access to these vaccines.
  • Trade: The neighbours could explore possible collaborations in textiles, IT and agribusiness, sectors that India was ‘strong in’.
    • Removing difficulties in market access, often created due to non-tariff barriers in receiving countries, to help boost the export of Sri Lankan spices and concentrate to the Indian market.
  • Respect for each others’ sensitivities:
    • India’s attitude and relationship with her immediate neighbours depend on their appreciation of India’s regional security concerns; they would serve as buffer states in the event of an extra regional threat and not proxies of the outside powers. 
    • Sri Lanka needs to complete the process of devolution of power to provinces by implementing its constitution’s 13th amendment. However, India is unlikely to take any strong positions on the Tamil question now with its growing geopolitical concerns in the region.

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