Focus: GS-II International Relations, GS-III Indian Economy
Why in news?
- India was holding “close and constructive” discussions with Sri Lanka, on Colombo’s pending request for a ($960 million) debt freeze and for swapping currency under bilateral and SAARC arrangements.
- The Reserve Bank of India has agreed to a $400 million currency swap facility for Sri Lanka.
India – Sri Lanka and debt
- Sri Lankan Prime Minister has 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.
- The Sri Lanka government was accused of “giving away national assets” to India, though Sri Lanka’s Port Authority was to retain 100% ownership of the facility, as per the 2019 tripartite Memorandum of Cooperation.
- South Asia watchers often resort to the India-China geopolitical lens, while analysing Sri Lanka’s international relations in the neighbourhood and beyond.
- 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.
- Both India and Sri Lanka should focus on increasing the volume and quality of people-to-people links.
RBI move to Swap Currency with Sri Lanka
- Currency swaps are used to obtain foreign currency loans at a better interest rate than could be got by borrowing directly in a foreign market.
- The RBI’s action follows a recent bilateral ‘technical discussion’ on rescheduling Colombo’s outstanding debt repayment to India.
- Following the outbreak of COVID-19 in the region, India had proposed a virtual meeting to discuss the request by Sri Lanka, that owes $960 million to India, to freeze the loan.
-Source: The Hindu