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It has since been decided, following discussions between Lancashire and the BCCI, that Iyer will remain in India to continue rehab ahead of his planned return to cricket.
"We are obviously very disappointed, as we were thoroughly looking forward to welcoming Shreyas to Emirates Old Trafford," Lancashire's director of cricket, Paul Allott, said. "Ultimately Shreyas' long-term fitness is of paramount importance and Lancashire Cricket fully respects the decision.
"We wish Shreyas all the best with the remainder of his recovery, and from the conversations, which I have had with the player, believe that this is an arrangement he would be keen to revisit again in the future."
Iyer, 26, has played 51 times in limited-overs internationals for his country. He missed the truncated 2021 IPL after suffering a partial dislocation of his left shoulder in the field during the first ODI against England in Pune.
Iyer said: "I am gutted to not be able to play for Lancashire this summer, a club that has such history and ambition. I hope to play at Emirates Old Trafford for Lancashire at some point in the future."