Indian currency
- the hot cakes
A huge amount of US dollars earned by Nepali migrant labourers is being used to purchase Indian currency (IC) for imports from the Southern neighbour.
Over the last nine months, Nepal sold $1.86 billion to purchase IRs 83.60 billion, up by Rs 13 billion compared to the same period last year, according to the Nepal Rastra Bank (NRB) statistics.
The figure is also more than half of the central bank’s foreign currency reserves. As of the seventh month of the current fiscal, the Nepal Rastra Bank (NRB)’s foreign currency reserves stand at $3.54 billion.
The country had purchased IRs 70 billion during the same period last year. Nepal’s trade deficit with India has already crossed Rs 123 billion mark over the last seven months.
Purchase of IC surged historically last fiscal when the country made massive imports. Nepal had purchased IC worth IRs 102 billion last fiscal, up from IRs 73 billion in the previous year, according to NRB.
The increase in IC purchase coincides with the rising trade dependence on India. As of the first seven months of the current fiscal, India’s share of the country’s foreign trade soared to 67 percent from last years’ 55 percent. Nepal’s export to India surged by 10.8 percent, while imports went up by 24.7 percent.
This year, Nepal witnessed a decline in trade with third countries. “Nepal’s trade dependence on India is alarmingly rising. High dependence on a single country means Nepal is losing power to formulate economic policy independently,” said Bishwombher Pyakuryal, an economist.
One of the main reasons behind Nepal’s high IC requirement is the country purchases petroleum products in IC. Petroleum products come first in the list of imported goods in terms of size. Nepal imported petroleum products worth Rs 37 billion as of the seventh month of the current fiscal. The country had imported petroleum worth Rs 51.55 billion last year.
In a bid to address rising IC demand, the central bank is also considering purchasing petroleum products in dollars. “We will soon hold dialogue with the Nepal Oil Corporation (NOC) in this regard,” said a senior NRB official. “Payment in dollars may be a good idea if India gives some concession on Nepal’s petroleum import.”
NRB officials suspect that the rising capital flight could be one of the reasons behind surging IC demand. “According to our study, demand for IC is increasing as people are using IC to pay premiums to Indian insurance companies and to open bank accounts there,” said an NRB official. “People are also making investment, purchasing apartments and taking financial services in India.”
Usually, IC notes are used for cross-border informal trade. Pyakuryal suspected that even the formally given IC might have been used for capital flight. “The NRB does not have documentation whether concerned importers are using all IC notes taken from Nepali banks,” said Pyakuryal.
According to a banker, some Indian banks agents are in the Capital urging people to deposit money in Indian banks, promising them of Indian ration cards. Despite rising IC demand, the central bank has been maintaining that it is capable to fulfil the demand. However, marketing of IC is on rise in Nepal-India border areas.
According to a NRB study, a total of Rs 19 billion was withdrawn from commercial banks through Indian ATMs in the first seven months of the current fiscal. Such withdrawal was just around Rs 3 billion in the same period last fiscal. “A Huge amount was withdrawn from India through ATMs to sell them in higher price,” said the official.
IC purchase
Fiscal Year Amount in IRs
2006-07 40.32 billion
2007-08 70.60 billion
2008-09 73.40 billion
2009-10 102.09 billion
2010-11 (nine months)83.60 billion
Posted on: 2011-04-10 09:19
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