July 17: The purchase of Indian currency by Nepal Rastra Bank (NRB) has more than doubled in the last six years. The central bank buys Indian currency every year in exchange for US dollars and other convertible currencies to meet the internal demand. The Indian currency is used to pay for the import of goods from India and to Indian workers. But the shortage of Indian currency is being felt in the local market as the demand is rising each year but the supply is limited.

Experts have warned that there is likely to be an acute shortage of both Indian currency and convertible currencies in Nepal if this trend is not controlled. This has raised the risk of Nepal’s economy landing in crisis, according to the experts. However, the government of Nepal and the central bank seem least concerned to avoid such situation.

Instead of buying Indian currency with US dollars and paying back to India for the goods imported from the southern neighbour, economists have suggested that it would be wise to pay the Indian manufacturers directly in dollars.

Payment in dollars would be an added benefit for Nepal after India recently imposed goods and service tax (GST). As per the new taxation system in India, goods exported from India would be exempt of GST if the payment is made in dollars. This would greatly benefit the Nepali business and the cost of goods imported from India would go down in the Nepali market.

Besides that, the central bank doesn’t have to take the nuisance job of buying Indian currency with dollars just to pay it back to the Indian companies. Nepal will also not have to take the blame for circulating counterfeit Indian currency in the Nepali market if its deals with India directly in dollars.

However, NRB is least bothered about the benefit Nepal can take from the current situation, according to the Nepali industrialists. One of the industrialists accused NRB of not even listing the raw materials that India allows to buy in dollars in the new category.

“We haven’t been able to benefit from the facility given by India due to the negligence of our own government,” he said. “In such condition, how can the Nepali industry become competitive?” he questioned.

NRB Deputy Governor Chintamani Shiwakoti said that the Nepali economy cannot handle the payment of goods imported from India in dollars.

“We have been gradually increasing import from Indian by paying dollars in various heads, as per the requirement,” said Shiwakoti, adding, “But we cannot allow all the deals to take place in dollars right away.”

Shiwakoti argued that it is not possible at the moment to allow all transactions with Indian dealers to take place in dollars as the NRB has to keep 50 to 60 percent dollars as reserve amount.

However, Nepali entrepreneurs say that it would be more practical to deal with Indian manufacturers directly in dollars instead of buying Indian currency in dollars and then again paying back the same India currency.  

Purchase of Indian currency doubles in six years

Data provided by NRB shows that Nepal has purchased Indian currency worth Rs 441.57 billion by paying US$4.2 billion plus 120 million euros in the last fiscal year. In the FY 2068/69, NRB had purchased Indian currency worth Rs 213.95 billion.