February 15: The exchange rate between Nepali and Indian currencies has been stable for decades. To buy 100 rupees of India (INR) through official means, one has to pay Rs 160 Nepalese currency. However, for some time, the informal market has started getting INR 100 for Rs 155. In the informal market, the Indian rupee has depreciated against the Nepalese currency.
Traders said that not only in the border market, but traders in the federal capital Kathmandu and main cities are also providing INR 100 for Rs 155. A businessman from Birgunj said that the price of INR has been falling for about two months. Those businessmen claim that the currency has depreciated after the demand for gold has fallen due to the decrease in global trade.
Experts also agree with this argument. Former Governor of Nepal Rastra Bank Dipendra Bahadur Chhetri said that since India is Nepal's largest trading partner, if trade with India decreases, the demand for gold will naturally decrease and its effect may be seen in the form of currency devaluation.
“The trade deficit with India has comparatively decreased in recent months. The data shows that the demand for gold has decreased in banks and the private sector. It is natural that the price will decrease after the demand has decreased,” former governor Chhetri told New Business Age.
Most of the trade with India takes place in India. Traders say that the share of imports in foreign trade is high, and two-thirds of the trade is with India. However, the demand for INR has decreased due to the decrease in import. According to an experienced trader of Birgunj, the entire payment for imported goods is not done through the banking channel.
The businessman said that most of the goods coming from India come under low invoice, and the amount other than that mentioned in the bill is paid through informal means (hundi). He claims that since the formal trade has decreased, the demand for INR in the form of hundi has also decreased.
Both formal and informal business are being done side by side. Recently, due to the decrease in both trades, the demand for INR has decreased, said another trader. He shared that he had to pay up to Rs 164/165 for INR 100 when the demand for INR was high. Traders say that at some point this rate had reached as much as Rs 170.
There are also others who claim that the money came from India because the banks in Nepal gave higher interest on fixed deposits.
Some experts suspect that the price of gold in India is higher than that of Nepal, so the value of gold may have been devalued due to gold smuggling. They believe that since the amount of gold sent from Nepal has to be paid in Nepalese currency, the demand has increased and due to this, the value of the Indian currency has depreciated.
As India has recently increased the customs duty on gold, it is claimed that its informal export from Nepal will increase further. After the Russia-Ukraine war, trade decreased, opportunities for investment in fuel production decreased, and the price of convertible currency also fluctuated, so most of the investors saw investment in precious yellow metals as a safe haven, according to experts.
Ex-governor Chhetri also points out the possibility of unauthorized export of gold from Nepal to India as India has increased the customs duty on gold. He claims that devaluation of the currency will be beneficial for Nepal's economy only if exports and revenue of Nepal increase.
“Otherwise, the profit/loss of fluctuations in informal sector will remain informal. It will not benefit the economy," said Chhetri.
He also claimed that this state of depreciation will not last long. From rice, pulses to vehicles and even the fuel used in those vehicles come from India. “In this case, imports from India will not always remain low," he said. "As soon as business returns to normal, the value of currency will be back to normal."
