Crisis-ridden Sri Lanka has zeroed in on seven categories of goods, apart from petroleum products, for sourcing from India this year, utilising the lines of credit that New Delhi has extended to Colombo, sources told FE. These products include essential food items, medicines, cement, textiles, animal fodder, raw materials for key industries and fertilisers.
Lankan importers are placing their goods requirements accordingly with suppliers here. Indian exporters are required to approach State Bank of India, which has signed an agreement to extend $1-billion credit line to the island nation, for payment, one of the sources said.
Given that Sri Lanka is facing its worst economic turmoil since 1948, triggered by a foreign exchange crisis, it wants to restrict imports to only essential products.
The island nation has been seeking an additional $2 billion line of credit to tide over the crisis. India has already provided $1.5-billion lines of credit to it since January. These include $1 billion for imports of food, medicine and essential items and another $500 million for petroleum products. On top of these, India’s assistance also includes a $400-million RBI currency swap and a deferral of a $500-million loan repayment.
Domestic exporters are already apprehending a sharp drop in supplies to Sri Lanka in FY23 from a record $5.7 billion in the last fiscal, as authorities there have resorted to import curbs.
New Delhi’s major exports to Columbo include petroleum products, pharmaceuticals, steel, textiles (mainly fabric and yarn), food products and automobiles. Exports of many of these products to Sri Lanka are going to ease in FY23.
While any potential fall in India’s exports to Sri Lanka and Nepal (the latter, too, has imposed limited import curbs to conserve foreign exchange reserves), given the limited trade value, they, nevertheless, add to an array of external headwinds for Indian exporters, most notably the massive supply-chain disruption in the wake of the Ukraine crisis. Moreover, the crises come at a time when India is seeking to build on its robust export performance in FY22.
Sri Lanka and Nepal imported merchandise worth $15 billion from India in FY22, up about 50% from the pandemic year of FY21. India was the largest exporter of goods to both Nepal and Sri Lanka in FY22.
Much depends on further assistance by India and Sri Lanka’s discussion with the IMF for a bailout package, exporters have said.
Sri Lanka’s GDP contracted by a record 3.6% in 2020 and its foreign exchange reserves crashed by 70% in the last two years to about $2.31 billion by February, leading to a sharp depreciation of its currency. Meanwhile, its debt has swelled to $51 billion.