The Reserve Bank of India (RBI) has permitted trade transactions with Sri Lanka to be handled in Indian Rupees (INR), outside the Asian Clearing Union (ACU) mechanism, due to the difficulty faced by exporters in obtaining revenues from the island country. The Indian government guaranteed a term loan of $1 billion granted to Sri Lanka by the State Bank of India to finance the acquisition of vital commodities and services such as food, medicines, gasoline, and industrial raw material.
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KEY POINTS:
- Financing of qualified goods and services exported from India, as defined by the agreement, would be allowed under the terms of the agreement, but only if they met certain criteria.
- As long as they are eligible for export under the Indian Foreign Trade Policy, their acquisition is agreed to be financed by SBI.
- These directives, according to the RBI, are effective immediately.
- The credit facility under the agreement can be drawn down for up to 12 months from the agreement’s signing date.
About Asian Clearing Union:
- The ACU was founded on December 9, 1974, at the request of the United Nations Economic and Social Commission for Asia and the Pacific, to promote regional cooperation.
- Its headquarters are in Tehran, Iran. The agency’s principal goal is to make payments easier.
- The agency’s principal goal is to make it easier for member countries to make multilateral payments for qualifying transactions, reducing the usage of foreign exchange reserves and transfer costs while also increasing trade among the countries involved.
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